Welcome back to another episode in our series on tracking retirement. Today we’re talking all about your fiduciary role. If you’re a plan sponsor or business owner, odds are that you are your plan’s fiduciary.
What does that mean? It means you have the duty and loyalty to do what’s in the best interest of your participants and you have to take a prudent man’s approach. Every decision you make on a 401(k) needs to be made with the participants in mind.
How can you alleviate this heavy burden? By designing a process that lets you vet investments, investment managers, record keepers, and any other provider to your 401(k) plan. You do this through a system such as a benchmarking process or request for proposal.
When we work with a client, we use a benchmarking process each year. Our investments are screened across 11 data points and we do this annually so that you can get the best price. You don’t have to make changes to your investments every year, but you have to go through the benchmarking process each year. If you don’t end up changing anything, you just need to fill out a document that states your reason for staying with your current vendors.
In addition to vetting your vendors, you’ll also have to look at your investments. It’s best to work with a professional who can do the heavy lifting for you when it comes to screening.
316, 321, 338 are co-fiduciaries that you may be using currently or are considering using. All this means is that you’re taking some of your fiduciary burden and giving it to a third-party vendor to help you with it. They are never totally responsible because as long as you can hire, fire, or retain them, you are still the fiduciary.
Finally, let’s talk about investment selection. How many should you use in your plan? I’ve heard of people using 30, 50, or even 100 different investments. However, that’s not what you should do. You want to make sure your process is simple and repeatable. The easiest way to do this is by thoroughly vetting and choosing 16 to 25 investments.Fewer investments will also result in participants being less scared about using their plan and an overall increase in plan participation.
If you have any questions for us about your fiduciary role or you want to take action and get started on a world-class 401(k) plan for your employees today, don’t hesitate to give us a call or send us an email. We look forward to hearing from you soon.