The start of the New Year has been fast and furious. I thought the end-of-year planning and tasks were busy… that was until 2024 came in with a bang!

We’re already getting bombarded with requests, and it appears as though many emerging industry human resources and chief financial officers are concerned with their 401(k) plan.

For example, a med tech company out of Baltimore, Md. contacted us about their plan. It was a hardy conversation with the CFO and the Human Resources Director. We went over some of the issues they’ve discovered such as low bond coverage, late filing, and some employees’ lack of participation.

While their list was quite specific, the human resources director changed the course of the conversation away from the specifics. She thought it would be more productive to look at the “big” picture for their plan.

She knew there were new DOL initiatives, and the SECURE Act 2.0 had brought about some changes to retirement plans. This was a great way to get a solid overview of their plan’s performance.

The dynamic landscape of emerging industries, creating a thriving workplace extends beyond traditional practices. With the evolving needs of the workforce, a well-structured 401(k) plan stands out as a key component in attracting and retaining top talent.

So, we discussed the key metrics company 401(k) administrators should focus on.

The first metric you should concern yourself with is the participation rate… Encouraging active participation is the foundation of a successful 401(k) plan. What is a good participation rate? Anywhere from 85% to 52%… the delta is wide from many factors including industry and census demographics of your employees. Benchmarking will help uncover where you should be. Either way, solid participation from your employees can reflect a positive company culture, one that emphasizes employee benefits.

Next, you will want to check on the Contribution Rates. There are a lot of reasons to be concerned with contribution rates. A big concern is, according to a 2018 Schwab survey, 62% of participants’ largest source of retirement income is their 401(k). If this is the case, employees will need to make sure they’re contributing enough to meet their goals. Education and communication can help with this. Much like participation, contribution rates reflect the company’s commitment to their employee’s financial well-being.

Employer matches are another metric you should review. We are going to spend a little more time on this third metric as there is a lot to unpack. Especially because an employer match is a powerful incentive for employees to contribute more to their 401(k). Thus, the match can help with participation and contributions…

In many cases, a company match is a “win” for the employees but also a “win” for the company (in more ways than one). Psychologically, a 401(k) with no match at all is generally considered “inferior” to one that does. While I make the argument that tax-deferred savings is one of the main reasons for investing in the 401(k), employees will overlook this. Often, they think the plan offers little value with no match. Again, I might argue otherwise but can’t stop market sentiment…

A little trick might be to add a Profit-Sharing contribution to your plan. It does not lock you into contributions like Safe-Harbor and it has flexibility including if you offer it, when you offer it, and you can create a vesting schedule. Of course, you will want to evaluate different matches. Each match has unique characteristics and can offer benefits in different ways so they should be explored closely.

Number 4 brings us investment diversification. With the proliferation of Retirement/Target Date funds, there may be reason to overlook diversification in the investment menu. You still need to review the investment mix and consider offering diverse investment options to align with varying risk appetites. A financial advisor can help you with this… You will want to provide resources and education to employees about diversifying their investments and help them to be better investors.

This next one gets overlooked… Plan leakage. This term describes the withdrawal of money from the plan ahead of retirement. Addressing premature withdrawals and loans from 401(k) accounts is crucial. High plan leakage can hinder long-term savings goals. If your plan is suffering from leakage, you should explore strategies to educate and provide resources to employees. Remember, a good record keeper/401(k) platform offers plenty of resources…

Number 6 is evaluating plan costs. Efficient management of plan costs is vital for both employees and the company. However, this is easier said than done. While transparency is building within the 401(k)-management industry, it does have a way to go. Also, many variables affect pricing. Also, several types of fees are assessed… such as fees for the investments, record keeper/401(k) platform fees, TPA or Third-Party Administration, and investment advisor fees. Even a “bundled” simple fee may incorporate most of these fees.

The fee ranges vary… from an all-in average fee of 2.22% but can vary from .2%-5% (Smartasset 2019). The average expense ratios for the investments are from .3% to 2% (Investopedia, 2019)

Rounding out the list is employee satisfaction surveys. Many of you handling the administration of benefits are likely using surveys of some sort when it comes to soliciting employee input. We’ve helped strategize with human resources on survey questions to ask… In short, they don’t need to be complicated and keep the survey short. The feedback can help gauge communication strategies, plan features, and effectiveness of educational programs. We’ll be writing about 401(k) surveys in the coming months.

As many of you On Pointe 401(k) subscribers are aware, we have written a lot of lists in the past few weeks for how to evaluate and create an effective plan. You also should know by now that the best way to uncover a lot of this analysis is through benchmarking. One benchmarking can help uncover how you stack versus your competition. To benchmark, please contact us here. Or to learn more about Alpha Pointe Capital 401(k) services check us out here.

Catch you on the next On Pointe 401(k)!