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.