BENCHMARKING YOUR RETIREMENT PLAN
Mark Twain once said, “comparison is the death of joy.” While this may be excellent advice for personal development, comparison is imperative as an employer and mandatory as a plan sponsor. If you sponsor your company’s retirement plan, you already know of your increasingly daunting fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA). Employers and plan fiduciaries have a responsibility to ensure that the plan fees are known and reasonable. To that end, benchmarking is a critically important step towards fulfilling your fiduciary duties.
WHEN SHOULD I BENCHMARK?
Monitoring your plan’s investments is a fundamental fiduciary responsibility. Investment performance should be reviewed at least annually; ERISA recommends quarterly reviews as a best practice. A survey by PLANSPONSOR® shows that the majority (91.7%) of plan sponsors benchmark their defined contribution plans once per year.
APPLES TO APPLES
Benchmarking should be a key part of your due diligence process. By comparing your plan to others in your peer group, you can assess participant saving and investing metrics, quantify fees, and determine whether your expenses are reasonable. Metrics can vary based on your industry and the size of your company, so an “apples to apples” comparison is critical.
An important thing to note is that ERISA compliance doesn’t require plan sponsors to have the lowest possible fees. Fiduciaries only have an obligation to keep fees “reasonable in light of services offered” – which gives you a free hand to improve the cost/value ratio of your plan. For example, you may find yourself paying extra for the services of a more experienced retirement plan advisor, but the difference in service quality can be worth its weight in gold. Three out of four plan sponsors who work with a professional retirement plan advisor report that 50% or more of participants are on track to achieve a comfortable retirement!
Conducting a quarterly (or at least annual) benchmarking report can help you keep costs under control and goes a long way towards protecting plan fiduciaries. A thorough report should compare plan costs, engagement, and design features, including:
· Total plan cost
· Investment expense ratios
· Recordkeeping and administrative costs
· Advisor consulting and service fees
· Plan participation rate
· Deferral rates
· Employer match
· Automatic diversification options
· Catch-up contributions
Benchmarking should be an enlightening process that clearly and objectively illustrates how your plan is doing. This process can illuminate areas in which your plan excels, as well as call attention to any improvements that can be made.
FMN is a member of Retirement Plan Advisory Group (RPAG), a national alliance of accomplished advisors whose precision and ingenuity produce enhanced value for sponsors and participants in qualified and non-qualified plans. As a member of RPAG, Financial Management Network has access to dedicated Provider Search/Fee Benchmarking resources.
In many cases, the best solution for 401k plan sponsors will be to hire a professional fiduciary who focuses solely on the ins and outs of 401k plans. Let us simplify the benchmarking process and help you reduce administrative headaches by leveraging over 20 years of experience as well as RPAG’s acclaimed technology platform.
Feel free to contact us to learn more about complimentary benchmarking.
CURTIS S. FARRELL CFP AIF
Financial Management Network
26041 Acero Mission Viejo, CA 92691
Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.
 Moore, Rebecca. “Plan Benchmarking Measures.” PLANSPONSOR. Feb 2015
 EACH Enterprise LLC. “The Practice Professional Development Plan.” Professional Development (2005): The Value of a Professional Retirement Plan Advisor. 2014