401(k)s for Nonprofits: 5 Things You May Be Missing

Finding Opportunities to Enhance Your 401(k) Plan

A 401(k) retirement plan is a valuable benefit for your organization’s employees. To stay competitive in the marketplace, you want to make sure your employees use the plan and have a positive perception of it. Now is a good time to take a close look at your organization’s 401(k) to see what you might be overlooking.

Here are five considerations to help you identify costly problems, find hidden risks, and provide you and your employees with valuable opportunities in your retirement plan.

You Might Be Paying Too Much for Your Plan

You are invested in the human capital of the organization and aim to arrange a valuable benefit for all who work there. But are you paying too much for your organization’s plan? In addition to the cost to administer it, there may be other hidden fees that aren’t immediately apparent. When you add up all of the plan’s expenses, are you (and your employees) receiving the value you expected?

Questions to ask about your 401(k) plan costs:

Do you know all of the fees associated with the plan?
Are you aware of the investment fees on the plan options?
Have you benchmarked these costs with other organizations in your industry?

Your Plan Could Be in Violation of the Rules

401(k) plans are subject to tighter rules and regulations than some other benefits under the 1974 ERISA Act of the Department of Labor (DOL). A major responsibility of the 401(k) plan is to ensure that it doesn’t disproportionately reward highly compensated employees. As a result, the plan must either go through annual nondiscrimination tests or employ a safe harbor provision. It also needs a fiduciary that makes plan decisions, which might be the investment manager, plan sponsor, third-party administrator (TPA), or financial institution. Not only does the DOL have enforcement powers over the plan, the IRS may impose penalties if those administering the plan abuse their interest in it.

The laws for retirement plans can change rapidly, and your 401(k) plan must still follow them. The cost of noncompliance with all the rules and regulations can be expensive and damage the organization’s reputation. Your TPA handles all the administrative tasks, but you are responsible for ensuring the TPA is doing its job properly.

Questions to ask about your organization’s 401(k) plan compliance:

Are you being transparent in communication with employees?
Is your TPA proactively staying in touch with you concerning your plan?
What were the results of your last nondiscrimination tests?

Your Employees Might Not Be Satisfied With Your Plan

Retirement plan benefits are key to your efforts to attract and retain talented employees. Is your current plan doing its job? It’s unlikely that an employee will leave just because they don’t like the investment options or the cost they bear to enroll in the plan. However, a benefit that employees don’t feel is truly beneficial won’t help you retain or attract top talent. There are financial institutions and TPAs that can provide a value-packed program that is attractive both to your bottom line and to your potential and current employees.

There is no reason to maintain a plan with suboptimal offerings when better options are available. A retirement plan that offers the perks that good employees want plus a strong incentive to contribute will help you keep the talent you hire. A worthwhile retirement benefit shows your workers that they’re valued.

Questions to ask about your company’s 401(k) plan satisfaction:

What percentage of your employees take advantage of their 401(k) benefit?
Does your staff have a good experience when dealing with the investment company and/or TPA?
Do you provide a matching contribution, and how does that compare to other companies in your industry?

You Could Be Getting Better Value for Your 401(k) Benefit

Just as a high-quality remodel can increase the value of your home, a 401(k) plan can also provide your organization with advantages over others when done right. One important factor is finding a plan that offers a range of investment options at competitive fees. With a solid menu of investments, your organization can demonstrate its compliance with standards as well as its dedication to your employees. The investments need to be suitable for anyone in your organization, whether they are young and starting at entry level, middle-aged, or near retirement. That usually requires a range of options without expensive fees that drive up the costs of investing. If the menu provided by your current 401(k) plan contains too many high-cost options, you may be doing a disservice to your employees.

Questions to ask about your organization’s 401(k) plan investments:

What are the employee costs to invest in the plan?
What types of investment strategies are offered?
Who can your employees ask for help when choosing investments?

A Financial Planner Could Help Optimize Your Plan

Since 401(k) plans can be complex, having a financial adviser on your plan can assist you in maximizing this employee benefit. The adviser can act as a bridge between your organization, employees, and third parties such as the TPA you use. When your employees receive 401(k) education and advice, more of them will avail themselves of the benefit. This assists in nondiscrimination compliance testing so that the plan isn’t tilted toward executives or other highly compensated employees.

Finding someone who has experience in various types of plans as well as with the rules and regulations gives you additional oversight, especially when it comes to compliance. An adviser can analyze your costs and help you benchmark different aspects of the plan with those of other organizations your size and in your field. They stay up to date on possible changes that are coming and communicate those to you and your employees.