THINKING ABOUT CHANGING 401(K) PROVIDERS? 5 THINGS YOU SHOULD KNOW

Posted on by Jerome.Pfeffer

Offering a competitive benefits package, including a top-notch 401(k) plan, is essential for your company to recruit and retain top talent. Today’s workers highly value employer-sponsored retirement plans: 88% of them say that an employee-funded retirement plan is important to them.[1] In addition, eight out of ten new hire candidates consider retirement savings programs offered by prospective employers a major factor in their job search decisions.[2]

As a result, you should evaluate your 401(k) plan regularly — at least once a year — to ensure that it continues to be the right fit for your business and employees. For example, if you find during your review that you’re not satisfied with your current 401(k) provider due to high fees, poor investment performance or a lack of service and support, it may be time to consider changing providers. In addition, with many 401(k) providers offering new technology and features, now may be a good time to see if it makes sense to update your existing 401(k) offering by switching to a new provider.

If you’re considering making a change, here are five tips to help you evaluate your current provider. If you decide to switch, we can help make the transition to your new one as smooth as possible:

#1 Before considering new 401(k) providers, carefully review your existing one. Clearly identify why you’re unhappy with your current plan provider and services, then determine the improvements you’d like to see going forward. While your cons list for your existing provider may include “fees are too high,” don’t let that be the only reason for switching. Comparing plan providers based on fees alone doesn’t usually reflect the value you’re getting for what you’re paying.

Instead of focusing solely on fees, weigh your current provider — and any prospective ones in the running — based on factors such as:

#2 Get familiar with the conversion process. Let’s say you decide to change plan providers. After you choose one, what’s next? An experienced provider should do most of the heavy lifting when transitioning your plan to their platform — called a conversion. To start, you’ll need to review and complete paperwork for your current plan to share with your old and new providers.

You can also expect[3]:

#3 Take note of applicable fees. Your current provider may charge you a termination and/or surrender fee when you switch to a new one. These fees can range from a few hundred to a few thousand dollars. Call your existing provider to determine their termination and/or surrender fees in advance to avoid any surprises. Your new provider may also charge you to establish the new plan.

#4 You don’t have to stick to your old plan design. Plan sponsors often update their plan designs when switching providers. Most plan documents allow changes to be made at any time, but keep in mind that there may be amendment, regulatory or notice requirements you must meet before these changes become effective. Also, be aware of any timing concerns — for example, investment changes must be aligned with notice and blackout period requirements. Be sure to touch base with your old and new providers to address any potential issues.

#5 Communicate plan changes to your participants. When you make changes to your 401(k), including switching providers, you’re legally required to provide participants with a blackout notice that includes information about:


You should also provide employees with information regarding any fund or plan design changes.

It may take some time to review your current plan and switch to a new provider, if beneficial. Getting the support, and features and investment options that are best for your plan and participants will make the effort well worth it.

Need assistance? We can help you create an innovative and competitive 401(k) offering to give you an edge when it comes to recruiting and retaining talented employees. Contact us today to receive more information!


[1] Transamerica Center for Retirement Studies. 17th Annual Transamerica Retirement Survey. “A Compendium of Findings About American Workers.” December 2016.

[2] Transamerica Center for Retirement Studies. 19th Annual Transamerica Retirement Survey. “Employers: The Retirement Security Challenge.” October 2019.

[3] Human Interest blog. “How to Change Your 401(k) Provider.” April 2017.

Q12020 NEWS AND INFORMATION FOR EMPLOYERS

Posted on by Jerome.Pfeffer

The start of a new year is a great time to review your fiduciary governance process and confirm that your fiduciary priorities have been set. Preparing for the unexpected can be a delicate balancing act, but it is vital for the organized plan administration!

Our Q1 2020 Lift Retirement Newsletter covers the following topics to help you manage your fiduciary plan governance:

2020 COMPLIANCE CALENDAR FOR 401(K) PLANS

Posted on by Jerome.Pfeffer

Everyone loves the compliance deadlines that should be met every year. To help you stay ahead of the curve with important deadlines and filings, please find attached our complementary 2020 Compliance Calendar. If you have any questions about deadlines or information requested, please contact us to review today!

SECURE Act and What 401(k) Plan Sponsors Need to Know

Posted on by Jerome.Pfeffer

On 23 December, one of the largest changing legislative acts to impact America’s retirement system was signed into effect. The Setting Every Community Up for Retirement Enhancement Act – or SECURE Act – has many updates and modifications that seek to enhance retirement security activities. The Act strives to addresses challenges that small business owners face including helping your employees better understand their workplace savings plans, encouraging employees to save more for their future, and offsetting plan costs.

For plan administrators, sponsors and fiduciaries, here are a few of the biggest changes that you should be aware of:

The SECURE Act has many changes that could directly impact your company’s retirement plan. The information above is a brief high-level overview that might affect your plan, it is definitely not exhaustive and you should do careful review to learn how the SECURE Act will impact your company’s retirement plan.  For more information, please visit NAPA-Net’s SECURE Act resource page, which is updated continuously with new information.

Additionally, contact us, we are available to sit down for a conversation to discuss your specific plan needs.

VIDEO: 3 TRENDS TO HELP STRENGTHEN YOUR WORKFORCE’S RETIREMENT SAVINGS

Posted on by Jerome.Pfeffer

As your business grows and evolves, it is important to stay in the know on how to offer better workplace benefits that help recruit, reward, and retain your top employee talent. All the while, nudge your employees to save towards a confident retirement!

There are three trends that we feel can help strengthen your workforce. Watch our short two-minute video to learn more >>

PARTICIPANT GUIDE: 3 TIPS TO TACKLE DEBT

Posted on by Jerome.Pfeffer

In America, most people have debt and as an employer and plan sponsor, it’s helpful to provide resources that encourage your employees to pay down their debt.

Download our participant infographic “3 Tips to Tackle Debt and Help Brighten Your Financial Future” and share it with your employees!

WHAT ARE CORRECTIVE DISTRIBUTIONS AND HOW TO AVOID THEM GOING FORWARD?

Posted on by Jerome.Pfeffer

Tests – the word alone is enough to make the most studious of us sweat.  When placed in the context of 401(k) plans, i.e. determining whether your plan passes non-discrimination tests, anxiety levels can go through the roof! 

This article will take a brief look at ways to correct a failed “ADP” test, the non-discrimination test mandated by the Internal Revenue Code to determine whether 401(k) elective deferrals unfairly favor highly-compensated employees and use corrective distributions, a method available to fix a failed test.  It also outlines a few changes that can be made mid-year to improve test results and explains how to avoid the ADP test altogether.

Highly-Compensated Employees (HCE): Highly-compensated employees are those employees who own or are deemed to own through family attribution more than 5% of a business at any time during the current or prior plan year or who had compensation in excess of a specific dollar amount in the prior plan year ($120,000 for 2019 plan year testing).

When your Plan Fails the Test

Typically, the ADP test is done shortly after the end of the plan year, and if your plan fails, corrections are made in accordance with certain procedures and time frames. 

Generally, the plan document specifies the correction procedure; the most common method requires the plan sponsor to first recharacterize excess amounts as “catch-up” contributions, if possible, and then to make corrective distributions to the highly-compensated employees. 

Consequently, highly-compensated employees are not only unable to take full advantage of saving for retirement, but the refund of the corrective distributions means they will face additional federal and state income taxes.  Basically, these persons have to refile their taxes, which is time consuming and costly, and will have to pay appropriate taxes on the corrective amount.

OR, there is another option. If the plan sponsor chooses, they could make additional contributions to the non-highly compensated employees to correct a failed ADP test.

Although making corrective distributions to the highly-compensated employees or additional contributions to the non-highly compensated employees will resolve a failed ADP test, there are other options a plan sponsor can adopt on a proactive basis. 

Proactive Steps to Not Fail the Test

One option is to have the ADP test done mid-year to get an early assessment.  If it looks as though the plan won’t pass, here are three ideas to prevent failure:

  1. Restrict the amount of contributions that highly-compensated employees may make to the plan to either a uniform dollar amount or percentage of compensation.
  2. Implement matching contributions to encourage non-highly-compensated employees to participate at higher levels.
  3. Add an automatic enrollment feature with automatic annual increases to increase the non-highly- compensated employees’ deferral percentages. 

Additionally, greater communication can help increase highly-compensated employee’s awareness of possible corrective distributions, while better matching and enrollment initiatives can boost plan participation.

Skip the Test

There is one way to completely eliminate the ADP test. It is to adopt a safe harbor design for the plan. 

A safe harbor plan design requires specific contribution, vesting and participant notification provisions.  The three basic contribution options include: 

Keep in mind that adopting a safe harbor plan will eliminate the ADP test requirement for future plan years only. It cannot be adopted retroactively or mid-year to alleviate a failed ADP test for the current plan year.

A safe harbor plan can only be offered for an entire plan year; and since most plans have a 1/1 start date that could be good news if you think you will be failing the ADP test in the near future. Keep in mind that there are notification requirements and that participants must be notified 30 to 90 days prior to the start of each plan year, so if this is something you’re interested in, setup a call with your service provider today.

Non-discrimination testing is an integral part of sponsoring a 401(k) plan, but there is no need to have anxiety about the ADP test.  There are ways to correct a failed test and improve the test results if a failure seems likely as well as ways to avoid the test altogether.

PLAN SPONSOR GUIDE: 20 QUESTIONS TO ASK A RECORDKEEPER

Posted on by Jerome.Pfeffer

Your retirement plan recordkeeper should be a valued partner that helps support your plan and participants. It’s important to be confident in your recordkeeper and fully understand the value they can deliver for your plan.

One area where your recordkeeper can provide support is by helping your plan remain competitive. Our most recent plan sponsor guide highlights important conversation topics to learn about new technologies and available features.

2020 CONTRIBUTION LIMITS

Posted on by Jerome.Pfeffer

The IRS has announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019. For company retirement plans, the most recognized highlight is the 401(k) contribution limit increase to $19,500 for the new year.

Review the full list of contribution limit changes below and share with your plan participants!

HOW DATA ANALYTICS CAN HELP YOU MAKE RETIREMENT PLAN DECISIONS

Posted on by Jerome.Pfeffer

If you’re not using data analytics to help you make progress toward improving participant outcomes, then you could be missing out on a key component of plan governance. Data analytics are becoming a meaningful part of defined contribution plan governance for retirement plan fiduciaries.

Data analytics can provide detailed information on different participant segments and help sponsors recognize pain points in their plans.

Defining Pain Points

Think about using detailed analytics to break down plan data into specific employee segments based on key factors like age, job category, and tenure. Analytics highlight the employees and groups most at risk of retirement savings shortfalls, giving you useful insight on the tools and strategies that could best help them. Once you assess the analytics, it’s time to apply them to your plan.

Tactics for Retirement Readiness

PLAN DESIGN | Employers can use information from analytics to make changes or establish plan design features that can nudge participation at more impactful rates.

Plan Design options to consider:

  1. Low participant rate à Reenroll employees not participating
  2. Low deferral rate à Implement a higher automatic enrollment default rate
  3. Low deferral rate à Encourage auto-escalation of those enrolled but not saving enough
  4. Low deferral rate à Encourage participants to defer more by stretching the company match
  5. Improper asset allocation à Reenroll all participants into the plan’s QDIA

PLAN TOOLS | Positive employee behavior could be driven by using detailed analytics to help select plan tools and technology whether you want to increase participation, savings, tax efficiency, investing, budgeting or provide other education. With the help of your financial advisor, plan sponsors can develop tangible goals, scorecards, wellness programs, and more to track progress going forward to improve plan governance and help participants achieving retirement readiness.

Plan Sponsor Take Away

In a recent white paper, Willis Watson Tower stated, “We believe plan-wide statistics on mean or median participation rates, balances or contribution rates measure aggregate data on all participants but offer little in the way of insight into retirement adequacy and meaningful benchmarks for individuals or segments of the population.”[1](Emphasis added). Therefore, today, when most retirement plan committees look at roll-up 30,000 foot level data, data analytics will help you peek into the effectiveness of your plan. 

With the proper analytics, plan sponsors can understand their employees’ needs, then adjust and develop customized plans, enhanced plan features, and communication strategies and provide tools and technology to engage employees in positive behaviors. Analytics highlight the employees and groups most at risk of retirement savings shortfalls, giving you useful insight on the tools and strategies that would best help them reach retirement.


[1] Willis Towers Watson. “The defined contribution plan proposition: Retirement readiness.” September 2018.

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