By Spencer Williams
New Year’s resolutions aren’t just for dieters and exercisers. The start of a new year is an ideal time for retirement plan sponsor to assess the effectiveness of their plan. Virtually all plan sponsors have areas that are ripe for improvement. Here are five resolutions to make and keep in 2015 to ensure you have a smoothly-running, cost-effective plan than succeeds at preparing employees for retirement.
1. Drive the autos. Have you implemented what has already been proven to work? Auto enrollment, auto deferral escalation, and auto (default) target dates have helped ensure that participants are “in it to win it.” These “auto” features guarantee that participants are joining, saving, rebalancing, and preparing for retirement more effectively than simply going it on their own.
2. Promote portability through consolidation. In a perfect world, participants would have one 401(k) account that followed them throughout their working lives, making it easier to save and plan for retirement. Yet studies show most Americans have multiple retirement accounts. Many participants leave accounts behind when changing jobs, making effective planning a near impossibility, and many often lose track of their accounts. Helping your employees consolidate their stranded accounts into your plan via an in-plan consolidation program can help preserve and grow account balances, guard against the growing catastrophe of participant cash outs, and provide participants better protection and resources than if they rolled over their former employer’s 401(k) savings into an IRA.
3. Manage out the small balances. Instituting an automatic rollover program helps reduce the proliferation of small balance accounts in your plan. While automatic rollovers are commonly associated with IRA rollovers, offer your exiting employees the additional option of managed portability, i.e., moving their account balance into a new employer plan. Doing so helps you manage out your small balances and terminate your fiduciary responsibility while helping participants manage their money and stay invested in retirement. It’s both the smart and the right thing to do.
4. Measure what matters. The choice of a plan success metric will positively influence the performance of the plan. Leveraging the “you can’t manage what you don’t measure” mantra, adopting key plan success metrics will lead you to implement initiatives that improve those metrics. Two metrics I’ve found valuable in driving positive plan performance are average account balance and participant retirement readiness. Managing to both leads to better outcomes for sponsors (lower plan costs) and participants (improved retirement security).
5. Shed the excess weight. Most plans are burdened with an unnecessarily high frequency of returned mail and uncashed checks stemming from lost and missing participants. Managing this problem can weigh down a plan’s performance and tie up staff in administrative tedium. Organizations can track down lost and missing participants using the same technology and social media techniques that people use in everyday life. No excuses. Shed that weight ASAP.