Most 401(k) Plan sponsors expect their advisor to be an investment expert. That’s why they hire them, right?
Oftentimes, though, sponsors turn to generalist advisors (advisors that do not specialize in 401(k) plans) who pitch their investment skills as the reason you should hire them. The decision to off-load some of the liability for selecting and monitoring plan investments is a prudent one, and can certainly improve your plan outcomes, but when it comes to engaging with an advisor to work with your retirement plan, is a one-trick pony the best solution?
While investments are a crucial component of your company’s 401(k) plan, the best investments in the world may not be able to overcome a poorly designed plan. Admittedly, plan design is generally the responsibility of the record keeper or Third Party Administrator (TPA), but a specialist advisor can be invaluable in helping you choose the best design options that fit you and your employees best.
During the interview process with a potential client, we like to find out exactly what the client hopes to accomplish with their 401(k) plan. Some of the areas we discuss are:
- Are your goals for the 401(k) plan the same now as they were when you set it up?
- Are the company’s owners/key people able to defer as much income as they want?
- Are there issues with failed discrimination tests or refunds to highly compensated employees (HCEs)?
- Is the plan’s participation rate where you want it to be?
- Should you include loans in your plan?
- What percentage of your employees are truly Retirement Ready?
The answers to these questions will help determine if there are any design changes that should be made in order to accomplish your goals for the plan. A quality, specialist advisor should be able to intelligently present multiple design options in order to make sure your 401(k) plan is as successful as it can be.