Why is employee education so important?
It’s important for both the employer, as the plan sponsor, and for the employee.
The employer should consider making employee education meetings and one-on-one meetings with the adviser mandatory. It’s in the employer’s fiduciary interest to provide as much employee education as possible; that helps protect you if, say, 10 years down the road, an employee comes back and sues you, saying, ‘You never told me about the plan, I didn’t understand what I was doing, and now I don’t have enough money to retire.’ The employee might not have a case, but the associated court costs can become expensive. If you have documentation that you offered employee education, you can make the case go away much more quickly.
In addition, a greater understanding of the 401(k) plan leads to a greater appreciation of the benefit by the employee. Employees who don’t understand the plan tend to think, ‘Everyone has a 401(k) plan. It’s no big deal.’ But as they gain a better understanding, they develop a greater appreciation and start to realize how important a benefit it is. A 401(k) plan costs employers money to operate, and they would like employees to appreciate any benefit that is costing them money.
How often should you evaluate and benchmark your plan?
The market is changing so rapidly. If you haven’t looked at the pricing of your plan in the last three years, it is critical to benchmark it against others in the industry because pricing has come down dramatically.
Margins have gotten very thin, and you need to be looking at the average expense ratio of the funds among providers, and then look as to whether there are asset-based fees on top of that. A lot of employers don’t realize that you have to add those two fees together to know what you’re really paying. It’s important to be educated, not only on what fees you’re paying on the investments but also how much you’re paying the adviser, how much you’re paying for the record keeping platform and how much you’re paying for third-party administrative services.
An experienced 401(k) adviser will educate employers on those details so they can easily understand the fees they’re paying for each service. It’s an ongoing review process that advisers should be doing every three or four years. That doesn’t necessarily mean that you have to make a change; it’s just a matter of, ‘We went through the process, we documented it, and here are the reasons we’re going to make a change, or here are the reasons we’re not going to make a change.’
It is important to stay on top of your plan. Be sure to review your plan regularly and discuss any issues with your adviser, or shop for an adviser who will meet your needs.
Michael Gheen, CPA/PFS, is an associate director for SS&G Wealth Management LLC. Reach him at [email protected] or (330) 598-2208. Registered representative of and securities and advisory services offered through Multi-Financial Securities Corporation, member FINRA/SIPC. SS&G Wealth Management LLC is not affiliated with Multi-Financial Securities Corporation.
