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The 7 Traits of Highly Successful 401k Plans 

Is your retirement plan an integral part of your business strategy? 

Across industries and among companies of all sizes, the best retirement plans: 

  • Align with high level organizational and business goals 
  • Maximize employees’ ability to achieve financial independence.  

Retirement plans that meet these objectives share similar traits. When it’s time to review your 401k offerings (and you should do so at least once a year!), see how they line up with these seven markers for success:

  1. The Plan Has a Reasonable Price Tag.

The most effective retirement plans rarely fall into the lowest or highest cost range for their peer group. Most plan sponsors feel comfortable if the cost falls near the average. 

A pricier plan can meet Department of Labor requirements as long as the sponsor has sound reasons for this choice. These might include:

  • Superior service.
  • Access to more options.
  • Added fiduciary services.
  • A provider that understands and guides the sponsors through navigating the plan’s complexity.

Be forewarned–the following do not qualify as regulator-friendly explanations for a high-priced 401k:

  • The provider is a friend or relative of the CEO. 
  • The company “has always worked with” a particular provider. 
  • Senior management enjoys the semi-annual golf outing at the fancy country club. 
  1. Most Employees Have Account Balances.

The best retirement plans have at least 90 percent of employees with account balances. How can you achieve that level of participation? Start by setting up auto-enrollment for new workers and annual auto re-enrollment for your whole team. 

  1. A High Percentage of Employees Contribute.

Another indicator of retirement plan success–at least 85 percent of employees make contributions. Again, auto-enrollment boosts participation. So, does auto-escalation, a feature that automatically increases an employee’s contribution amount. 

  1. New Employees Roll Money into the Plan; Departing Employees Leave Their Balances.

To encourage these behaviors, make quality a priority–for your 401k and employee/management relationships: 

  • Provide access to investment opportunities that are not readily available elsewhere.
  • Convey the message that management genuinely cares about employees’ financial well-being.
  • Cultivate trust. When workers view management as a foe rather than a friend, they withdraw the balance from their retirement plan as soon as possible. 
  1. Employees Understand the Plan.

Take steps to ensure participants thoroughly understand their 401k plans. To accomplish this: 

  • Choose straight-forward plan designs.
  • Make sure management can explain how the plan operates. For example, do team members know how much they need to contribute to receive the maximum company match?
  • Recognize that if employees don’t understand their plan, they aren’t likely to contribute an amount necessary to build retirement-ready balances.
  1. There’s an Option for Each Investor Type.

401k investors generally fall into one of four categories. Design a retirement plan with an investment menu broad enough to meet these diverse needs: 

  • Core Fund Investors look to diversify without buying a large number of individual stocks, funds, and other securities.
  • Index Investors favor funds designed to match the return of an index such as the Standard & Poor’s 500.
  • Specialty Investors seek unique investment opportunities to diversify their overall portfolio.
  • “Do It For Me” Investors make up the vast majority of 401k participants. They prefer balanced investment options with built-in adjustments. One example is a target date fund, where the allocation mix becomes more conservative as the target date (retirement) approaches. 
  1. Company Leaders Talk Up the Plan.

Retirement plan success requires significant support from your company’s leadership. That means more than just touting the plan at official corporate gatherings. Executives should feature your retirement plan as a recruiting and retention tool and weave it into everyday conversations. 

Does your retirement plan incorporate these seven traits for success? FJY Financial can help you update what you’ve got or design a new plan customized to meet your business goals. 

Contact us for more information. We’re happy to hear from you.