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The great effect "Rhythm" has on a 401(K) Plan

| July 26, 2017
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In today's retirement world one of the greatest tools that companies can provide for their employees is a 401(K) retirement plan that gives them a chance to save during their working years to help them create wealth which is one large aspect of what I define as "Retirement Readiness".  401(K) plans fall under ERISA which is very complicated to not only the average financial advisor but to a Plan Sponsor or the company that is providing the plan to its employees.  I think the absolute without a doubt difference between well run 401(K) plans and poorly run 401(K) plans is the "Rhythm" in which they're run.  A fiduciary calendar is a great start in which the plan sponsor can refer to throughout the plan year to follow to help the plan sponsor fulfill their fiduciary responsibilities.  

Secondly, a plan should should have a set timeline of investment monitoring which directly coincides with their 401(K) Investment Policy Statement so that the plan can keep the investments compliant with the standards that they set forth.  All too often plans are created and then never touched again when they should be reviewed in a timely manner to help the plan work as efficiently as possible.  Plans are like cars in the fact that most of the time they have gotten better with time and should be reviewed on a yearly basis and then bench marked on a every 3 year basis at the very least.  Investment costs have dramatically come down so plans should benchmark so that they are comfortable with their investment lineup and the costs associated with those.

My basic principles for creating "Rhythm" in a plan are:

  • Creation of a customized Plan Document that fits the company's benefit structure
  • Creation of a Investment Policy Statement for the 401(K) so that the company can monitor its investments inside of the plan to match the criteria set forth in the IPS
  • Timely Investment Monitoring   -----  Quarterly is great with annually at the very least
  • Plan Trustee Meeting to oversee the Investment Committee and how they're doing
  • Formation of a competent Investment Committee 
  • Annual Plan Review to do a complete plan checkup
  • Vendor Management  
  • Plan Cost Review

Bottom line is this....Plan Sponsors have a fiduciary liability when a 401(K) plan is created and operated so it needs to monitored and reviewed as such.  The best place a company or Plan Sponsor can start is by hiring a competent retirement specialist to help quarterback the plan to help the plan and the plan's "Rhythm".

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