Client Scenario: Revisiting the Company 401(k) Plan

Client Scenario: Revisiting the Company 401(k) Plan

Client Scenario: Revisiting the Company 401(k) Plan

An Assessment of a Critical Employee Benefit

SITUATION

A manufacturing firm of about 100 employees, XY Innovations had been offering a 401(k) plan to its workers for several years. Although the company believed the plan was an important benefit for its employees, the company’s 401(k) committee members lacked the time and expertise to properly manage the plan.

During a regular meeting with their accountant, the owners of XY Innovations were advised that they may be overpaying for the administration and management of their 401(k) plan. Their accountant was concerned that the firm was not receiving proactive attention from their current plan providers

and referred the owners to an advisor with retirement plan expertise for a second opinion.

INITIAL CONSULTATION

The owners of XY Innovations met with a team of advisors at Strategic Wealth Partners (SWP). The owners wanted to make sure the plan is properly managed and to be involved in any decision making.

During the initial meeting, SWP became familiar with XY’s needs and explained how SWP generally works with retirement plan sponsors. SWP began to analyze XY Innovations’ retirement plan in more detail and identified three specific areas in which they could add value.

Goals

  • Lower overall fees
  • Improve and broaden the investment options
  • Provide hands-on guidance and education to participants

The 401(k) committee at XY Innovations was not fully aware of the various fees and other expenses of managing the plan. An assessment by SWP revealed the plan was running on an outdated platform with a cost structure that was inordinately high.

Provider Fee Comparison

On behalf of XY Innovations, SWP facilitated an independent bidding process from three different retirement plan providers. Then, SWP met with the owners of XY Innovations to compare and contrast the strengths and weaknesses of each provider’s offerings, based on the company’s needs. SWP helped select a platform for XY Innovations that would provide cost-savings, personal customer service, best-in-breed technology, and an easy-to-use website to facilitate participant engagement.

The 401(k) committee at XY Innovations had no objective way of evaluating the plan’s investment products, as the current advisor was not providing benchmarking or other comparative data.

During its analysis, SWP discovered that many of the plan’s investment options were funds that were proprietary to their current provider. Funds that are managed in-house by a provider generate revenue for that same firm, in addition to other fees and charges that the provider is assessing. In situations like this, there is at least the potential for a conflict of interest.

Recommendations

SWP analyzed the plan’s investment options and identified several that did not compare favorably to peers and industry benchmarks.  Concurrent with moving the plan to a new platform, SWP recommended substantial changes to the plan’s investment menu, including avoiding any proprietary products.

Model Portfolios

After understanding the overall needs of the employees at XY Innovations, SWP proposed offering model portfolios which allow participants who prefer a hands-off approach to select a pre-determined portfolio of funds that aligns with their specific situation.

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XY Innovations wanted to keep target-date funds which offer fiduciary protection and realized that Model Portfolios could enhance options for participants.

Finally, SWP discovered that employee participation in the 401(k) plan was low, with less than 50% of eligible employees contributing. The owners of XY Innovations wanted to increase participation, but didn’t know how to make that happen. They believed that the plan structure and design was appropriate, but unfortunately relatively few employees were taking advantage of the plan.

SWP and the owners of XY Innovations discussed several strategies and came to a decision on what would make most sense considering the owners’ long-term goals.

Strategies to Increase Participation

  • Incorporate automatic enrollment into the plan design
  • Create Model Portfolios
  • Conduct regular group enrollment meetings to educate eligible employees about the benefits of the plan and address individual questions and concerns
  • The plan’s external administrator facilitated the first of these strategies, while SWP handled the latter two

Going forward, SWP monitors the plan’s investments, is available to help participants and new hires, and regularly keeps up with any changes that may impact the program.

CONCLUSION

Many 401(k) accounts can suffer from inertia – neither the plan sponsor nor participants pay enough attention to it. Hiring an independent advisor can provide sponsors with confidence and satisfaction knowing that it is offering its employees a well-designed plan that will help them achieve their long-term objectives.

Disclosure:

Strategic Wealth Partners (“SWP”) is an SEC registered investment advisor with its principal place of business in the State of Illinois. The case study described herein is included for illustrative purposes only and no portion of this writing is to be interpreted as specific investment advice, a testimonial or endorsement of SWP’s advisory services as it is not known whether the client referenced approves of SWP’s services. Investing involves risk, including the potential loss of principal, and investors should be guided accordingly.

Past performance of investments is not indicative of their potential future performance. Reading or utilizing information in this presentation, or contacting or responding to our offices or Registered Investment Advisers does not create an advisory relationship of any kind. An advisory relationship can be established only after the following two events have been completed: (1) our thorough review with you of all the relevant facts pertaining to a potential engagement; and (2) the execution of a Client Advisory Agreement.

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