Your Retirement Plan – An Awesome Recruiting Tool . . . and an Awesome Responsibility
What do you think of when you hear the words precision, tolerances and quality control? Of course, these are words that describe how manufacturers conduct business on a daily basis – with an eye toward manufacturing a product that is to specifications and of the highest quality.
With a tight labor market and recent trends surrounding retirement concerns, offering a high-quality 401(k) plan is an essential recruiting and retention tool. Four of five employees indicate they want benefits and perks more than a pay raise, and a 401(k) ranks in the top five requested benefits, according to a recent Glassdoor survey. Millennials seem especially appreciative of benefits; 90% of employees 18 to 34 years old say they would prefer benefits over pay.
When it comes to small businesses (2-99 employees) only 42% offer retirement benefits. Yet, when searching for highly qualified employees, the smaller employer lacking an attractive 401(k) plan is in a less competitive position. Many smaller employers avoid the entire 401(k) issue due to fears and concerns about cost. Yet offering employees a plan can actually give you a unique competitive advantage. Top candidates will have multiple offers with fairly equivalent salaries. A top-notch 401(k) benefit can be a tie-breaker and will covey a strong company culture based on taking care of its employees.
Offering retirement plans can also be an important factor in reducing turnover. Employees who are making an investment in their future through retirement plans may be less likely to move on to other companies, in particular, when employers make matching contributions – a key component of the employee’s total compensation package
The quality of your 401(k) offering is essential. It is important to have the highest quality best practices when it comes to fiduciary governance, record-keeping, compliance, administration, investments, participant education, and reasonable fees and expenses. It is also important to understand the fiduciary responsibilities and oversight that is required to follow best practices.
Fiduciary liability, as defined by ERISA, can create both corporate and personal liability for the decisions you make regarding your 401(k) plan. This is where it is wise to take the same concepts you apply to manufacturing – precision, tolerances and quality control – when thinking about your responsibilities as plan sponsor of your company’s 401(k) retirement plan. If your duties cause you to exercise discretion over plan assets or administration (hiring service providers, making investment choices, spending plan assets, etc.) you are a fiduciary and need to make sure you understand and comply with your duties. Fiduciary status is based on the functions performed for the plan, not a title. Be aware that hiring someone to perform fiduciary functions is itself a fiduciary act.
The Internal Revenue Service (IRS) defines a fiduciary’s responsibilities as:
- acting solely in the interest of the participants and their beneficiaries;
- acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
- carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters;
- following the plan documents; and
- diversifying plan investments.
In operational terms, at a minimum, the duties generally include overseeing investments and service providers, conducting educational efforts to help employees understand the plan and their options, administrative functions required for plan compliance, periodic review of plan documents, and documentation of your fiduciary process.
Some challenges are worth the effort
Sponsoring a retirement plan goes a long way toward putting employees in the best position to retire at a standard of living comparable to their working years. Employers benefit, as well. Retirement plans increase employee loyalty, thus reducing recruiting and retraining dollars. Highly skilled and motivated employees result in greater productivity, innovation and profits. Human resources professional and consultant, Susan Heathfield, posited that benefits can add up to 7.3% bottom-line profit to a company.
Managing the risks associated with sponsoring a plan and maintaining plan compliance with complex IRS and Department of Labor (DOL) regulations can be challenging. Establishing a governance process can help you create clarity regarding the roles and responsibilities of plan fiduciaries.
As a plan sponsor and fiduciary, if you are unable to perform your necessary duties, it is incumbent upon the sponsor to obtain qualified help. For example, the selection, monitoring and replacement of 401(k) investments is a fiduciary decision. Engaging a qualified and properly licensed fiduciary advisor to assist or take over that responsibility is considered a best practice. Benchmarking your 401(k) plan fees, expenses and services is required to make sure your participants are paying reasonable costs. Again, an experienced advisor can help “peel the onion” and negotiate those fees and expenses on behalf of the plan sponsor and participants.
5 Steps to Establishing a Retirement Plan Governance Process (CBIZ White Paper)
401(k) Plan Fees Disclosure Tool (IRS publication)
Compliance Expertise Delivers Savings, Enhances Benefits Plan (Case Study)
At CBIZ Retirement Plan Services, we’re passionate about helping America’s workforce achieve the standard of retirement living they want – one participant at a time. We do this by helping employers navigate the fiduciary responsibilities that come with sponsoring a retirement plan and guiding each worker toward overall financial wellness. For more information please contact us here.
CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, investment management, third party administration, actuarial and other retirement plan services. Investments, investment advisory and investment management services offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and SEC Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Investment advisory and investment management services may also be offered through CBIZ Investment Advisory Services, LLC, SEC Registered Investment Adviser. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.
For important disclosure information please see www.cbiz.com/rps-disclosures.