Editorial Team

By Mark Olsen, Managing Director at PlanPILOT

In the multifaceted world of retirement plan management, the role of a consultant is not just to manage investments but also to demystify certain aspects of retirement plans that plan sponsors may or may not think about on their own. Central to this role is the imperative of fee transparency and the efficient management of plan costs. While it may be usual for those of us in the industry to think about these topics, plan sponsors may not consider how fee structures could affect their retirement plans and overall financial outcomes for plan participants. 

This article aims to shed light on the critical aspects of fee transparency so plan sponsors can best help the plan but also relay relevant details to participants. This type of transparency can foster a trust-based relationship between plan sponsors and participants and ultimately benefit both participants and the organization at large. Specifically, we explore actionable strategies for reducing costs, such as embracing technology and automation, effectively managing small account balances, and leveraging recordkeeper technology to enhance participant engagement.

Fee Transparency & Assessing Plan Fees

Understanding and disclosing the fees associated with retirement plans is not just a best practice; it’s a crucial element of fiduciary oversight. This section delves into the importance of accurately assessing and transparently communicating plan fees, laying the groundwork for trust and efficiency in retirement plan administration.

Overview of Relevant Regulations

Regulatory frameworks like the Employee Retirement Income Security Act (ERISA) play a pivotal role in governing retirement plan fee disclosures. ERISA mandates that plan sponsors must act in the best interest of participants and beneficiaries, which includes keeping fees reasonable and transparent. This regulation requires detailed disclosures about the fees and expenses associated with plan investments and administration. These disclosures allow participants to make informed decisions regarding the plan selections and investments.

To confirm your fees are reasonable and transparent, regularly review your plan fees, including the investment management fees and administrative fees. While others might suggest reviewing plan fees less frequently, I believe this should at least be an annual review.

Benefits of Compliance

Adhering to these regulatory requirements offers numerous benefits. For plan sponsors, compliance with fee transparency regulations reinforces their fiduciary duty, safeguarding them from potential legal liabilities. For participants, clear and up-front information about fees empowers them to make more informed investment choices. Additionally, this transparency fosters a trusting relationship between sponsors and participants, enhancing overall satisfaction with the retirement plan. Furthermore, it encourages competitive pricing and efficiency among service providers, ultimately benefiting the plan’s performance and the participants’ retirement savings.

If you aren’t sure you want to conduct these annual reviews (as well as the compliance requirements that come with it), you can also consider hiring an investment manager for the plan, who could then take that responsibility off your shoulders.

Managing and Reducing Costs When Possible

Efficiently managing and reducing costs is vital for both sustaining the plan and optimizing participant benefits. This doesn’t mean plan sponsors should work harder or longer hours for less money. Instead, the point is to streamline plan operations so you can minimize expenses. By focusing on innovative solutions such as technology integration, effective management of account balances, and leveraging recordkeeper platforms, advisors can significantly enhance the cost-effectiveness of retirement plans.

Embracing Technology and Automation

As innovations continue to advance, embracing technology and automation stands out as a way to change how you conduct your operations. By integrating advanced tech solutions, plan sponsors can streamline administrative processes, reducing the need for labor-intensive, manual tasks. This shift not only increases efficiency but also significantly lowers operational costs. Automation in processes like enrollment, contribution management, and reporting enhances accuracy and speed, further reducing the likelihood of costly errors. For advisors, this means being able to offer more competitive fees, while for plan participants, it translates into a more efficient, cost-effective retirement plan experience.

Managing Small Balances

Another effective strategy for cost reduction is the management of small balances in retirement plans, specifically those belonging to former employees. By rolling over or distributing accounts with balances under $7,000, this will increase the average account balance within the plan. This is a critical metric for recordkeepers when establishing fees. Higher average account balances often lead to lower per-participant fees due to economies of scale. Consequently, this strategy not only streamlines the plan but also has the potential to lower the overall fee structure, benefiting both current participants and the plan sponsor.

Leveraging Recordkeeper and Educational Technology

Utilizing the technology offered by recordkeepers can be a strategic move for plan sponsors. These platforms often provide tools and resources aimed at educating and advising plan participants. By using these technologies, plan sponsors can offer enhanced guidance and support without incurring additional costs. This approach empowers participants with knowledge and confidence in managing their retirement funds. Furthermore, educated participants tend to make more informed decisions, leading to potentially better plan performance, reduced costs, lower administrative demands, and less compliance risk.

Optimize Your Retirement Plan: Focus on Cost Efficiency and Transparency Now

Looking for specialized insights to optimize your retirement plan offerings? PlanPILOT can help. Our dedicated team brings a wealth of experience in retirement plan consulting, keeping your company ahead with the latest industry trends and strategies. With PlanPILOT as your partner, you can confidently offer retirement benefits that meet your participants’ needs while safeguarding a plan sponsor’s interests. 

To explore how we can support your retirement plan goals, contact us at (312) 973-4913 or drop an email to 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.

By Mark Olsen, Managing Director at PlanPILOT

To function as a successful plan sponsor, you need a retirement plan committee that helps your company organize and administer employee plans, such as the 401(k) or 403(b). While ERISA does not require the committee itself, committee members can keep your organization in compliance with all established regulations. To help you get the most out of your retirement plan committee, we’ve compiled several strategies for your consideration. Could implementing any or all of the following enhance your retirement plan committee’s performance?

Commit to Education

One of the challenges of maintaining a successful retirement plan committee is that there are no formal job titles or descriptions. And yet it is vital that committee members have the qualifications necessary to administer and manage employee retirement plans.

For example, committee members should be properly trained to understand their role as fiduciaries. This means acting in the best interests of retirement plan participants and their beneficiaries—and not the plan sponsor. Offering both preliminary and ongoing training can reinforce this distinction in the minds of committee members for a more effective team.

Similarly, it’s important for committee members to stay informed about evolving regulatory issues, such as changes to ERISA, DOL, or IRS requirements. Quarterly training sessions can keep your team apprised of any changes and can also create a layer of accountability to maintain fiduciary responsibility. With the passage of SECURE 2.0, there are a number of important items to discuss for potential plan adoption.

Delegate Tasks Appropriately

One of the most important benefits of a retirement plan committee is the ability to delegate tasks to committee members. For instance, you could divide your committee into segments, each one handling such roles as fiduciary oversight, administrative processes, employee communications, and settlor functions.

Delegating these tasks can also help fine-tune your education and training initiatives. Some committee members will benefit from specialized legal and regulatory training, while others may be better served by learning more about plan options.

Dividing your committee’s responsibilities may also assist in bringing on new committee members. Those with more experience in their committee assignment can serve as valuable mentors for new members and can demonstrate the best practices of retirement plan management. Providing some historical context for prior plan decisions is an invaluable benefit to new committee members.

Reflect Your Company’s Diverse Demographics

Sixty percent of American organizations have some type of diversity, equity, and inclusion (DEI) program in place. But does your retirement plan committee reflect this commitment to diversity and inclusion?

Historically, access to retirement plans for people of color has lagged behind that of their white peers. Your committee can be a part of your pursuit of inclusion and an accurate reflection of the makeup of your workplace. That starts by populating your committee with representatives from every age group, ethnicity, gender, and socioeconomic background. These representatives can provide guidance on how best to serve the needs and concerns of all groups under your employ—and the benefit is that this guidance comes from your committee’s own lived experience.

Documentation and Transparency

Given your committee’s fiduciary responsibilities, it’s important to document your decisions and activities. Consider appointing a secretary to record agenda items for each meeting, then record the minutes of each meeting and any action items that rose to the surface.

This is especially true when your committee implements changes to your company’s retirement plan. These changes, as well as any salient discussion points that led to those proposed changes, should be carefully and clearly documented. 

Does your retirement plan committee operate under a committee charter? While it’s not legally required, a written charter can help you stay organized and delegate who has fiduciary responsibility. A charter can also contribute to your legal defense in the event of a lawsuit.

Comprehensive Retirement Plan Consulting 

Need a little more guidance? PlanPILOT is here to help! We offer a comprehensive approach to retirement plan consulting, and our consulting services can also keep your company up to date on the latest trends. The right advisors in your corner can help your organization deliver retirement benefits that serve the needs of participants while mitigating risk to your company. It’s a win-win! 

To get in touch, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com. We look forward to hearing from you!

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.

By Mark Olsen, Managing Director at PlanPILOT

Managing a retirement plan demands attention to detail, foresight, and unwavering commitment. Financial advisors and plan sponsors bear the weight of managing funds that represent not only a lifetime of savings for many participants but also their aspirations for a comfortable retirement. While the financial landscape continually shifts and new best practices are developed, it’s possible for certain lapses in oversight to occur and impact the integrity of a retirement plan, especially as it relates to investments.

In my three decades of experience, I’ve seen a number of mistakes with retirement plans. Sometimes even seasoned plan sponsors fall for certain investment pitfalls. As we delve deeper, we’ll highlight three specific mistakes in the realm of investments that, while they might appear minor at first glance, can result in considerable financial and legal consequences over time. Addressing these errors is essential. In doing so, plan sponsors not only elevate the prospects of their participants but also underscore their commitment to diligence, transparency, and proficient investment management.

1. Not Documenting and Benchmarking Your Plan’s Specific TDF (Target-Date Fund) Funds

Benchmarking your plan’s specific target-date funds (TDFs) is crucial for myriad reasons, with cost savings being one of the most significant. By failing to benchmark, plan sponsors might be inadvertently sidelining better-performing funds that come with lower fees. This direct oversight could mean participants’ retirement savings aren’t growing at their full potential, making it harder for them to realize their retirement goals. The fees specific to target date funds has been central in the fiduciary lawsuits.

Furthermore, transparency becomes an issue when decisions about fund selection aren’t documented. Participants, auditors, and stakeholders might be left in the dark about why certain TDFs were chosen over others. 

Beyond the lack of clarity, there’s also the looming risk of fiduciary breach. As a fiduciary, we want to act in the best interest of participants. Yet without proper benchmarking and clear documentation, proving this fiduciary prudence becomes challenging and can lead to unnecessary complications down the road.

2. Not Updating (or Not Even Creating) an IPS (Investment Policy Statement)

An investment policy statement (IPS) is the backbone of a retirement plan’s investment strategy. Without a systematic process for reviewing and selecting investments, inconsistencies and haphazard decisions can creep in. A clear, updated IPS not only provides a road map for making sound investment decisions but also shields plan sponsors from potential legal ramifications by demonstrating due diligence and prudent decision-making, verifying they’re meeting their fiduciary responsibilities.

A missing or outdated IPS is also a potential cause of confusion for everyone involved. Advisors might find it hard to justify their investment decisions, while plan participants could be left not understanding the logic behind the funds offered. Inconsistencies could arise when there’s a need to evaluate underperforming funds or decide on their replacements. A well-maintained IPS reviewed regularly can aid in the smooth functioning and credibility of the retirement plan.

3. Not Regularly Reviewing the Share Classes Offered to Allow the Availability of the Lowest-Cost Options

One of the essential aspects of offering a retirement plan is ensuring participants have access to the most cost-effective investment options. Share classes in mutual funds can vary, and each class comes with a unique fee structure. Not all plan sponsors take the time to revisit these share classes periodically, potentially leading to participants shouldering higher fees than necessary. Over time, these added costs can erode the returns and compound to sizable reductions in participants’ savings.

In addition to the monetary implications, there’s also the matter of fiduciary responsibility. Offering the most cost-effective options falls squarely within this duty. Overlooking this critical aspect not only harms participants but also exposes sponsors to potential litigation and reputational risks. Maintaining a watchful eye on share classes keeps participants receiving the best value for their contributions.

Stay Ahead As a Plan Sponsor. Partner With Us.

Leading the way as a plan sponsor comes with its challenges, complexities, and ample room for mistakes. At PlanPILOT, we’re committed to partnering with you, equipping and informing you to make the best decisions for your plan participants.

If you’re determined to stay ahead in your sponsorship role and provide unmatched retirement solutions, let’s collaborate. You can schedule a time for us to meet at (312) 973-4913 or send me an email at 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.