If you’re the 401(k) plan sponsor for your company, it’s fair to assume that you’ll take the necessary steps to ensure optimal returns for all participants. This means negotiating lower fees, higher returns, and better management of your employees’ retirement accounts. Ideally, you should be motivated to do this because you have the best interests of your workers at heart, but that’s not all.
Plan sponsors are actually required by law to do all of the above. You have a fiduciary obligation to your plan participants, and you must always act in their best interests. Subsequently, if you pay too much in service fees or mismanage the retirement savings plan that you sponsor, you may find yourself on the receiving end of a lawsuit. And recent legal precedent says you’ll probably lose and pay damages to your employees.
Here’s the interesting part, though: you can actually maximize your company’s 401(k) with minimal effort. You shouldn’t need the threat of a lawsuit to act right for your workers. And no matter how small your company is, or how few participants are in your plan, you can get a good deal and earn higher returns. All that matters is that you know where to look.
So, if you feel like you’re not maximizing your company’s 401(k), here are some things you need to know, along with tips to help you find the right path.
You’re probably paying too much in fees
Whether you run a small business or you’re an executive in charge of handling the 401(k) plan at your national company, there’s a good chance that you’re paying excessive plan administrative fees. As a matter of fact, a study by the Investment Company Institute found that 75% of small businesses pay hidden fees that they have no idea about. These companies’ sponsors don’t even know they’re paying those charges, and they don’t know how much it costs them yearly.
The first step to maximizing your company’s 401(k) plan is reducing fees. Consider this: if you have a plan with one of the big 401(k) providers, you’re probably paying 4 – 5% in fees. Even if you have a balance of $2M, your fees amount to $80K minimum, every year. By moving your plan to a smaller firm, you can probably shave off half of that. As a small business, it may not be expedient to maintain a 401(k) plan with a big-name finance company. Their business model is not optimal for you, and economies of scale means you may not get the best rates.
Leverage a reliable process to earn higher returns
Another way to help your employees make the most of their retirement accounts is to structure your plan maximally to earn higher returns. As you read this, you’re probably wondering “doesn’t higher returns mean more risk?” Well, not necessarily. Mostly, it involves being proactive while investing, moving quickly to weed out underperforming funds, and making the most of profitable investment opportunities.
All these may not be possible if your plan is being managed by an advisor that’s not incentivized to be proactive on your behalf. And if you’re a small business, you’ll quickly find that financial advisors with billions of dollars under management don’t move as swiftly as boutique firms that are optimized for businesses like yours.
Consider this: despite the topsy-turvy nature of the global economy this year, the US stock market is expected to return approximately 26% profit. Even if your plan doesn’t grow at that rate, you should still be looking for returns above 19 – 20%; anything below that means you’re not maximizing your 401(k) plan. Get a report from your advisor now and compare the performance of your account year-on-year with returns from the average market. That should provide a clearer picture of where you stand.
Review your 401(k) plan regularly
As you can see, there are many different ways you could better perform your role as plan sponsor. Now, it may seem like a lot of work to keep track of your account, ensure the fees aren’t excessive, and measure how well it performs relative to the average market. But the upside is worth it. Every single $ will count for your employees and plan participants when they retire. And let’s not forget, you have a fiduciary obligation to look out for them.
For now, you can take advantage of this opportunity to have your plan evaluated by a retirement account specialist. This is offered free of charge, and you don’t have to commit to anything beforehand and do anything afterwards. All you have to do is book an appointment, and our plan specialist will contact you to start the process. With little effort, you can see if you’re maximizing your company’s 401(k), paying too much in charges, or getting optimal returns.
