Offering a retirement plan to your employees can be a significant investment for your company. Like all major expenses, you should periodically evaluate the design and costs associated with your plan and consider whether alternative design alternatives and/or service providers could deliver better results at lower costs. Sometimes even minor tweaks to your retirement plan can result in savings for your business today as well as provide improved outcomes for your employees in retirement.
Items to consider whether you’re implementing a new plan or evaluating your current retirement plan design are below. The process begins with asking some basic questions, like these:
- Do you understand the fees connected with your plan and the services that generate them? Many employers don’t fully appreciate how much they are paying for the administration of their plan. A review of plan costs could result in significant savings and improved benefits within your existing plan.
- Do your employees understand the value of the plan? Any analysis of the plan should include a look at how it’s utilized by eligible employees. Are they participating? If so, are they getting the full value available to them? If they’re not participating, what’s stopping them? This information could be used to develop a strategy to increase participation and improve employee understanding of the value of the retirement plan benefits being offered.
- Is your contribution strategy right for your business? Every employer needs to think strategically about where their dollars are being spent and what resources should go to their retirement plan. Does your current contribution strategy reward top talent in key functions within your business, or does it simply check a box on your corporate resume and try to keep all of your employees happy? If you have limited resources to contribute toward employee benefits, you need to make sure that what you’re spending creates a positive differentiator for your business in a competitive employment marketplace.
- Could another plan design be a better fit? If your attempt to answer the previous question leaves you unsure about the value of your contribution strategy, you may want to weigh the potential costs and benefits of moving to an alternative plan design. You may find that your retirement plan is more effective as an employment incentive if you could target benefits to different tiers of employees. For example, under a “new comparability” plan design, you could structure employer contributions to benefit different groups of employees at different levels, even skewing benefits toward your owners or highly compensated employees, without running afoul of the nondiscrimination rules that otherwise apply to retirement plans. The ability to deliver different levels of contributions based on job classification can make these new comparability plans particularly valuable to employers trying to attract top talent in competitive employment markets.
- Has your business been through a merger, or is one under consideration? If you’ve been through a merger, do multiple plans exist post-merger? You may be able to reduce costs and improve benefits to your employees by terminating or merging plans and offering fewer, more targeted choices going forward. If you’re considering some form of merger or acquisition, you’ll want to make sure that all retirement and benefit plans are included in proper HR due diligence reviews. Potential liabilities in these areas need to be identified and resolved before any deal closes.
- Is your current vendor right for you? Depending on the conclusions you draw from the analysis of your existing plan (or when setting up a new plan), it may be time to switch vendors altogether. If so, you’ll need to develop a plan for finding a new provider. Larger employers will need to develop a request-for-proposal (RFP) that asks key questions that are important to you as a plan sponsor and distribute that among potential vendors. Smaller plans may not find as many providers willing to manage them, but they still need to understand the options that are available. Regardless of the plan size, you’ll still be evaluating vendors based on some of the criteria we described above, such as fee structure and contribution strategy. It’s back to step one in terms of evaluating the plan provisions to determine the best fit for your business.
- Who explains the plan to our employees? Most third-party administrators today have robust employee education programs for introducing new plans. Typically, that responsibility will be outlined during the vendor selection process.
- What ongoing support is required for the plan? Periodic nondiscrimination testing and reporting is required for most retirement plans. You’ll need to make sure you meet IRS and DOL requirements for compliance and nondiscrimination testing as well as annual return filings, participant notices, etc.
You can always ask for guidance. Any time you evaluate the costs and benefits of something as complex as a retirement plan, it always helps to have an experienced, knowledgeable professional guide you through the process. If you have questions about your current retirement plan or are considering potential replacements, please contact one of Plante Moran’s employee benefits consultants to discuss your concerns.
