Practice these 7 preventive steps to support & improve plan health

April 12, 2023

women discussing finances

Employers that sponsor retirement plans do so because they understand the importance of helping to support their employees’ current and future financial health.

Of course, plan sponsors want good outcomes for participants. But they’re also responsible for plan compliance to ensure the plan remains qualified for tax benefits.

And just like regular, preventive medical and dental checkups play an important role in identifying health issues before they have a chance to become serious, retirement benefit plans need periodic reviews and preventive maintenance.

Establishing an annual schedule of routine planning, measurement, reporting and adjustment can help plan advisors and sponsors recognize what’s working well and what can be improved as circumstances change and new needs and opportunities arise.

The landscape of retirement plan rules and regulations, investment choices, plan features and technology are constantly changing. Many employers can see swiftly shifting demographics from one year to the next in a fast-moving labor market. All these possibilities can impact plan features, programs and investment options.

Setting up a recurring meeting cadence to review and address plan needs is the best way to stay on top of it all. In time and with practice, periodic plan reviews feel less like a major oversight event and more like a routine checkup. Plan sponsors, advisors and providers should work together to implement these essential plan health maintenance steps throughout the year.

1. Begin with a big-picture assessment and review

Start off the process with a review of plan sponsor goals with a plan advisor and/or provider. An in-depth conversation is likely to uncover any changing demographic trends, emerging needs, opportunities and gaps to address. It can also help everyone get a better idea of what it will take to design a plan that takes care of employees while also meeting the needs of executives and/or business owners. Expect to come away with a better understanding of the plan’s strengths, as well as the areas that need attention.

Not all plan designs have the same effect for different employers. Features and provisions worth examining impact the balance between investment choices and flexibility on the one hand, and improving outcomes for the greatest number of participants on the other. Factors such as auto-enrollment, default investments and other investment types, incentives to save (such as matching contributions) and withdrawal penalties can have different implications for employees based on demographics, income level and even financial literacy.

Guidance from a financial professional can be invaluable for the clarity they can bring to the table. 

2. Set plan goals

Every company is unique, so it’s up to plan sponsors to define what success looks like. Among priorities, a sponsor might need to prioritize many factors, including:

  • Maximizing participation and deferral rates
  • Optimizing rates of return and/or investment diversification
  • Attracting and retaining top talent
  • Minimizing the time and effort needed to manage the plan

Needless to say, a zero-error goal for administration and recordkeeping is at the top of a sponsor’s must-have list. Look to a professional for help identifying where risk can be reduced and benefits can be enhanced to achieve the plan’s top-priority goals. Keep in mind that different stakeholders may prioritize different goals, and be willing to have the necessary conversations to get agreement.

3. Decide which measures matter most

Participation rate is a common measure of plan success, but it’s not the only one. Deferral rate data can clarify whether plan participants are actually saving enough to support their financial security in retirement. Think about it this way: A plan may have 100% or near-100% participation, but if participants are setting too little aside for retirement, is the plan succeeding?

Participants’ personalized rates of return and/or portfolio diversification among participants can also tell a story about whether the plan is meeting needs. Advisors and plan providers can help identify industry benchmarks for the selected measures of success.

4. Articulate accountabilities and plan quarterly reviews

Once goals are set and measures agreed upon, make sure responsible parties are aware of their individual accountabilities — and get those agreements in writing. This includes tasks and deadlines for stakeholders within the business as well as the plan advisor and provider. Get key dates on the calendar in advance, including key decisions and deliverables, reporting and filing dates, and regular quarterly milestone meetings to keep a close eye on plan performance.

5. Make strategically informed decisions

Good decision-making starts with good data. Get help where needed to match solutions with specific business goals, stakeholder needs and communication audiences. Do plan participants demonstrate a need for financial education? Are tools available to streamline complex fiduciary tasks and/or compliance requirements? How could automated processes or other technologies support the plan’s designated top priorities?

6. Measure, report and assess

Track and review plan performance to see whether current features, provisions and tools have had the intended impact, and take a fresh look at employee demographics. But a review doesn’t stop with an inside view. 

Legislative changes and regulatory developments happen frequently. For example, recently passed SECURE 2.0 legislation will mandate auto-enrollment for plan years starting after December 31, 2024, with a deferral of at least 3% of a participant’s salary.1 The broader economic landscape shifts, too, often for reasons outside anyone’s control. That’s why it makes sense to revisit regularly.

7. Update goals as circumstances change

After gathering, reviewing and analyzing previous plan year performance numbers, plan sponsors can make data-informed adjustments to the goals. When circumstances change, plan sponsors and advisors can support ongoing plan success by implementing appropriate changes. 

SOURCE, Secure 2.0 Act of 2022.