Plan Benchmarking.
What is it?
It's the process of reviewing your plan providers, investments, and fees to see where your plan stands.
Or as I like to say "Creating Clarity".
Simple right?
But this "simple" clarifying fiduciary task is often overlooked for years when best practice is to do it every 2 to 3 years.
If a plan get's audited, it can make it hard to explain the process a plan sponsor has for reviewing the above when it isn't being completed often enough.
For a lot of plan sponsors I talk to, they believe they are doing it every year when they sit down with their advisor for an annual review.
Once I dig in, it becomes apparent that this isn't happening.
Why?
Plan sponsors tend to believe "benchmarking" is reviewing just the investments.
And while reviewing the investments is certainly an important piece of the puzzle, the other pieces aren't being reviewed to create a full plan benchmark.
What needs to be included?
- A review of your plan record keeper and the fees they are charging.
- A review of your advisor, the services provided, and the fee they are charging.
- A review of your Third Party Administrator, the services offered, and the fees they are charging.
- A review of the current investment lineup.
Things to review and consider per service provider:
A very important aspect of the benchmarking process is making sure you understand the services each piece of your plan is providing and if they are taking care of your plan.
Recordkeeper
- Fees – has the plan recently surpassed any meaningful breakpoints to garner reduced recordkeeping pricing? Is the Plan using the most efficient share-class of investments? There are still some menus out there using antiquated or expensive A shares and I see this a lot!
- Fund Performance – does the RK have a proprietary requirement? Does the requirement create any lag in overall portfolio performance? Is there an Investment Policy Statement that provides some process for reviewing investments for performance or cost within peer groups?
- Service- does the Plan have a dedicated Account Manager, or is it supported by a pod or team approach? Are calls answered or returned on a timely basis?
- Features – does the platform offer adequate participant engagement? Are the resources (website, mobile, participant call-in center) accessible in terms of technology and language?
Administration
- Does all the compliance work get done on a timely basis?
- A lot of TPAs will file extensions on their 5500 work just to give their administrators more time as they tend to be over-assigned books of business. Has the Plan Sponsor ever gotten stuck with fees or penalties for untimely filings?
- A lot of TPAs will file extensions on their 5500 work just to give their administrators more time as they tend to be over-assigned books of business. Has the Plan Sponsor ever gotten stuck with fees or penalties for untimely filings?
- Does the Plan Design still meet the goals and objectives of the Sponsor?
- Plans evolve over time as the employee demographic changes since Plan inception.
- Does the Plan currently available commonly preferred features like Roth and loans?
- Does the Plan struggle to pass annual non-discrimination testing?
- Does the Plan allow principals and key employees the full tax mitigation or nest-egging they may need?
- Plans evolve over time as the employee demographic changes since Plan inception.
- Are the fees reasonable? Is there a lot of nickel-and-diming for services, resulting in invoicing surprises?
- Do amendments get done in a timely fashion? Do loans get processed in a timely fashion? Other types of distributions?
- Do large plan audit sponsors get good support from their Administrator when the auditor is looking for various data and reports?
Once you have this information the next steps are as follows:
- Request 3 proposals from record keepers and TPAs for potentially taking on your plan.
- Find out what the average fee for advisory services is on a plan your size. Though these can vary based on what services they provide the plan, there is a high end and a low end for these services.
Ask the following questions when reviewing your plan advisor:- Are they a 3(21) or 3(38) investment fiduciary to the plan? If not, have they worked with your record keeper to provide another party that is a 3(21) or 3(38) investment fiduciary to the plan? Do they charge the same fee or discount it if they aren't providing support?
- Are they providing participant education services?
- Are they helping you understand the plan costs?
- How often do they meet with you and what is provided in those meetings?
- Do they help with committee meetings and are they educating the committee if you have one?
- Do they help you understand important reports like investment performance reports being provided?
- Are they a 3(21) or 3(38) investment fiduciary to the plan? If not, have they worked with your record keeper to provide another party that is a 3(21) or 3(38) investment fiduciary to the plan? Do they charge the same fee or discount it if they aren't providing support?
There are many considerations to make when taking an unbiased look at your plan. As a fiduciary you have a responsibility to your participants to make sure that this employee benefit is truly benefiting your employees.
Our goal at Equity 401k Consultants is to help educate plan sponsors on the important fiduciary tasks and help make sure they are being completed.
If you feel this hasn't been done or you would like a 3rd party to help you complete a plan benchmark, please contact me! You can simply call (626) 224-7715 or email mneeley@equity401k.com for more information.