The 7 Biggest Concerns for 401(k) Plan Sponsors in 2019

As business owners evaluate the state of their current company 401(k) plans, a pattern of common concerns arises. What are the biggest plan sponsor concerns and why are they on the forefront of everyone’s mind right now? You’re about to find out!

The following seven major issues are currently plaguing plan sponsors. If these issues haven’t yet raised a concern for you, maybe they should.

1. Participant Hardship Withdrawals

When a plan participant requests a hardship withdrawal fromtheir 401(k), it can create an awkward situation for everyone involved. The participantoften doesn’t understand why they can’t have immediate access to their own money, and, in many cases, the employer might agree with them. After all, whyshould they risk losing their home or some other financial crisis when theyhave sufficient funds to cover their needs sitting in their retirement account?

The flip side of this is the desire to protect employees from themselves. Even a small withdrawal now can have a major impact on your employee’s ability to retire comfortably in the future.

One thing everyone seems to agree on is that the ability to make withdrawals should be limited to some extent. The Bipartisan Budget Act of2018 (“Budget Act”) introduced new legislation that goes into effect on January1, 2019. Since the proposed regulations weren’t released until mid-November,many plan sponsors were required to make these decisions without sufficientclarification. The specific impact of these law changes is yet to be seen.

2. Compliance Requirements

Everyone knows there are plenty of compliance requirements when it comes to maintaining a 401(k) plan. However, most business owners are simply too busy trying to maintain company profits to give it the attention it deserves. Most plan sponsors turn this responsibility over to third parties, but it’s important to understand that doing so does not relieve you of your ultimate responsibility. It’s always possible that the professional you hire can make a mistake, and if this happens, the liability still falls squarely onyour shoulders.

If you’re relying on your custodian to handle your compliance issues, you’re likely not as protected as you think you are. Many of these vendors do not take a proactive approach to ongoing compliance. You can save yourself a lot of headaches by ensuring that the third-party you outsource to is as concerned about keeping you out of trouble as you are.  Note that selecting a vendor in itself is a fiduciary act, so you’ll need to pay careful attention to the services offered and the value they bring.

3. Business Sustainability

Let’s face it, if you can’t turn a profit in your business, there’s no need for a 401(k) plan because eventually there will be no salaries and no jobs. As a business owner, your number one priority is to maintain thesustainability of your company. This means you need to make money, attractqualified employees, and remain competitive. In a tight labor market wherewages continue to rise, this continues to be a challenge.

With unemployment at the lowest rate since the 1960’s, business owners are realizing more than ever how important it is to offer a quality benefits package. Having a basic plan with a company contribution inplace is no longer sufficient. The best plans now focus on providing qualityfinancial education to employees. A financially-healthy employee is moremotivated and productive, creating a win for all parties involved.

4. Low Employee Participation Rates

If you offer a plan but very few of your employees are participating, what good does it really do? Auto-enrollment can significantlyimprove participation rates. However, according to a survey by Vanguard, only15 percent of small businesses have adopted this practice. Plans that do takeadvantage of auto-enrollment typically see participation rates of over 80percent, while those who don’t hover somewhere around 58 percent.

It’s clear that auto-enrollment can make a big difference, but it’s not enough. You can improve your participation rates even further by working with a professional to provide quality employee education an ensure the enrollment process is easy. Increasing the employer contribution and allowingfor immediate eligibility are also effective tactics for encouraging youremployees to enroll in the plan.

5. Insufficient Savings Rates

According to a recent survey by Bankrate, 65 percent of Americans aren’t saving enough for their retirement. Even worse, 20 percent aren’t saving anything at all! Employers who are concerned about their employees’ low savings rates can help by working with a third party to move away from the standard “quarterly enrollment meeting,” and instead provide interactive education opportunities designed to encourage them to save more.

6. 401(k) Plan Costs

It seems like you can’t go a single day lately without hearing about concerns over 401(k) plan costs. From administrative expenses to internal fund costs, recordkeeping expenses, and other expenses embedded in the plan, it’s the responsibility of the plan sponsor to know exactly what is being paid, to whom, and why.

If you’re not 100 percent clear on this, now is the time to find out, since failing to do so can land you in hot water. This leads us to the final, and possibly most important, plan sponsor concern.

7. Fiduciary Liability

The term “fiduciary liability” refers to the overall personal level of risk a plan sponsor takes on when offering a company 401(k) plan. While it’s certainly no fun, the discomfort created by this liability does exactlywhat it’s supposed to do. It makes you more concerned about the appropriatenessof your plan than you would be otherwise.  

By giving YOU personal liability, the DOL has ensured that your best interests and those of your employees are one and the same. You don’t want to take the chance of being sued by your employees or facing serious fines, so you do everything in your power to make sure things are done right.At the end of the day, that’s a good thing.

Best Practices for Addressing Plan Sponsor Concerns

Now that you’re aware of the most important plan sponsor concerns, you’re probably wondering what to do about them. FiduciaryShieldprovides a unique service that addresses all of these issues and more. Contact us today to learn how we can give you peace of mind and help make 2019 your best year ever.