When structured and implemented well, a 401(k) plan can be an important component of an employee's financial well-being and state of mind. Selecting an advisor for your company’s 401(k) plan is an important first step to building a plan, as they will play a crucial role in its creation, implementation, and administration. The right plan can help to secure your employees’ financial futures, improve employee morale, and help attract and retain top talent to and in your company.
A trusted advisor fosters employee confidence, which in turn can help to maximize engagement. No matter how good of a 401(k) plan you create, it’s not helping anyone if it isn’t being used. This is just one of the many reasons we will outline below for why choosing the right 401(k) advisor is critical to delivering this benefit to your employees.
The needs of most small and medium-sized businesses are different. This makes it imperative that employers choose a competent advisor who can assist in designing and implementing a 401(k) plan that aligns with your company's specific goals and needs. The right advisor should provide guidance on plan design options, investment choices, and other critical factors to ensure the plan is well-suited for your employees' needs.
Furthermore, a good 401(k) advisor can educate both employers and employees about the plan's features, benefits, and contribution options. This can be done through in-person seminars at your company, informational literature outlining the plan, or simply helping you to be prepared for questions that your employees may have.
This educational support helps employees understand the importance of saving for retirement and empowers them to make informed decisions regarding their financial future. Perhaps most importantly, it educates them about their options and gives them control over securing their retirement goals.
A poorly designed 401(k) plan may result in limited investment options, high fees, and inadequate support services. This can negatively impact employee participation, engagement, and overall retirement outcomes. As noted above, a 401(k) plan that isn’t used doesn’t do any good for anyone, so it’s worth making the effort to ensure the plan is beneficial to all.
In addition, a subpar 401(k) plan can expose employers to legal and regulatory risks. Failing to comply with the complex laws and regulations from the IRS and ERISA governing retirement plans can lead to costly penalties and potentially even lawsuits.
401(k) providers typically fulfill three primary functions: the advisor, the custodian, and the record keeper. Each role outlined below must work together to ensure the successful implementation and operation of a 401(k) plan:
When evaluating 401(k) advisors, it is crucial to consider their history of adherence to the fiduciary standard, which means that they are legally obligated to act in the best interest of their clients. This standard ensures that advisors prioritize the welfare of plan participants, and minimizes conflicts of interest that could compromise the plan's success.
In contrast, advisors following the suitability standard are only required to recommend suitable investments, even if they may not be the best option for participants. Employers should prioritize working with fiduciary advisors to provide the highest level of protection for their employees and mitigate potential legal risks.
Choosing a 401(k) plan provider involves evaluating various factors to ensure they align with your company's needs and priorities. The following key aspects should be considered when assessing potential providers:
In addition to assessing the plan provider, you should also take care to evaluate your advisor's qualifications. Consider the following aspects to ensure your advisor is well-equipped to provide quality guidance:
An employer should also consider the financial advisor’s fees when selecting a 401(k) advisor. Different fee structures exist, and some will cost more than others. Some examples of advisor-related fee structures are based on the percentage of Assets Under Management (AUM), hourly fees, or flat fees.
Consider the following aspects related to financial advisor fees:
If you are concerned about financial advisor fees, there are several strategies to consider:
Implementing a 401(k) plan for your company can help to boost morale, attract & retain top talent, and allow your employees to focus on work rather than worrying about their financial future. Selecting the right 401(k) advisor is crucial for both employers and employees, as they will play a major role in the plan’s design and administration.
By considering the importance of a competent advisor, the risks associated with a poor 401(k) plan, and evaluating the functions of 401(k) providers, employers can make informed decisions to protect their plan and employees. From the outset, creating a plan for your company may seem like a monumental task, but the right 401(k) advisor will help shoulder much of the burden and keep the plan on track.
Choosing the right 401(k) advisor for your needs can make the process both efficient and effective, so it’s imperative to do your due diligence based on the information provided above.
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