The devil is in the details—this common phrase couldn’t be more relevant than it is in the context of successfully managing a 401(k) plan. And this is where plan sponsors rely most heavily on the guidance and continued involvement of their plan consultants—to seamlessly coordinate back office functions and day-to-day operations. To that end, consultants should play a pivotal role in the following key activities and areas of focus.
- Choosing the Right 401(k) Provider
One of the most impactful ways that plan consultants can serve their plan sponsor clients is by helping them to align with the right 401(k) provider. As the sponsor’s advocate, the consultant should direct the provider vetting process—comparing the pricing and relative value provided and, ultimately, ensuring that the chosen provider delivers on what was promised.
The quality of the provider platform, of which the menu of investments options is the cornerstone, is the foundation of the plan’s success. The provider platform also drives plan functionality through services such as administrative support, recordkeeping, technology, and online access.
Having a consultant who knows first-hand how providers perform and the right questions to ask goes a long way toward helping plan sponsors put the right team in place to serve their employees, while meeting their fiduciary obligations.
- Living the Investment Policy Statement
The Investment Policy Statement (IPS) should be crafted with an eye toward the plan fiduciary’s duty of prudence and loyalty. It will, of course, stipulate an unbiased, well-rounded selection of funds at a reasonable price for the sole benefit of participants and their beneficiaries. However, to ensure that the intent of the IPS is actually carried out, the plan must incorporate an ongoing process of due diligence.
Most plan sponsors count on their consultants to shoulder this burden—employing metrics in order to monitor the plan’s investments; ensuring that the most competent managers in the business are hired; and that underperforming managers are replaced. Leaving nothing to chance, consultants should be prepared to review the investments quarterly, including face-to-face meetings, and at least annually, with the fund managers.
- Keeping Current and Maintaining Plan Focus
While plan sponsors understand that they hold a high level of responsibility for maintaining their 401(k) plans, oftentimes they simply don’t know what they don’t know. With defined contribution plan regulations in constant flux, it’s important to stay ahead of the curve. Consultants should reach out to their industry contacts and key partners to share perspectives on where the industry is headed and how clients might benefit from opportunities and be protected from potential risks.
In terms of keeping sponsors on point with their plan duties, many of the most successful consultants say that it takes a team. It’s important for sponsors to have a dedicated team rather than just one individual to rely on. Consultants should have internal processes for multi-level client service. The entire team should be trained on service protocols and be aware of specific client issues and concerns, in order to provide the most responsive client service and ensure that the information delivered is always consistent.
It’s important to set these expectations from the beginning of the process—even at the first meeting—so the plan sponsor will know the level of support they should anticipate quarter to quarter, year to year.
- Creating and Maintaining a Fiduciary Binder
The consultant should not only make sure plan sponsors are meeting their fiduciary responsibilities, but also that they have the right documentation to prove it—consolidated and up to date.
It’s all about the mundane, but vital task of meticulous recordkeeping; knowing what’s important; and what data to request from third party providers. This requires staying current with the ever-changing DOL rules and requirements—something very difficult for plan sponsors to do, but easy for consultants, who know the business inside and out.
Key components of the binder should include current plan documents and amendments, agreements and contracts, year-end filings, employee notices, investment reviews, meeting minutes, documentation of plan changes, and samples of all participant communications. Consultants and plan sponsors should conduct an annual review of the contents of the binder to ensure that the material is comprehensive and updated.
- Following-up with Plan Participants
Where most plans fail to achieve their full potential, and in the process, miss the mark on optimally preparing employees for retirement, is the lack of consistent follow-up with plan participants.
Without consultants pushing for them, regular employee meetings often fall by the wayside—out prioritized by the daily demands on employers and employees. Yet this sort of consistent contact is vitally important.
It is really just a matter of the consulting team doing the legwork—scheduling one-on-one meetings far enough in advance, making sure plan sponsors encourage employees to take advantage of personalized consultations, and conducting mandatory group sessions, at least annually, to review high-level plan information.
Ideally, participant meetings should be supplemented with consistent consultant communications. These communications may include quarterly newsletters, discussing topics from the outlook for financial markets and key issues surrounding retirement savings to addressing subjects such as coordinating benefits with social security, contribution options, plan distribution guidelines, plan portability and more.
It’s important to remind plan sponsors that this sort of attention is part of the service that the consultant has committed to—which only reinforces the benefit of having chosen to engage in a consultant to help manage the plan in the first place.
The Complex Made Simple
Consultants who remain actively engaged with plan sponsors and their employees throughout the year have the greatest opportunity to enhance plan effectiveness and substantially increase plan participation and contribution rates. As you can see, when evaluating operational imperatives to making or breaking a 401(k) plan, it all comes down to attention to details and flawless execution.
Cristina Moalli is Director of Defined Contribution Plans at Beirne Wealth Consulting, an SEC Registered Investment Advisor with approximately $2 billion in assets under management. Moalli’s firm offers a service for advisors to outsource their retirement plans and institutional business if they do not want to do it themselves.
Moalli is responsible for developing and implementing strategic measures to optimize the firm’s services for the growing retirement services client base. She continuously identifies best practices for the firm and its clients, offers client support on day-to-day issues, and serves as an advocate with service providers to confirm service deliverables have been met. She also actively participates in client plan review meetings. Check out BeirneWealth.com for more information.
Cristina Moalli is Director of Defined Contribution Plans at Beirne Wealth Consulting, an SEC Registered Investment Advisor with approximately $2 billion in assets under management. Moalli’s firm offers a service for advisors to outsource their retirement plans and institutional business if they do not want to do it themselves.
