Each year Brightscope, an independent financial information company that aggregates retirement plan data, releases a list of what it believes are the best 401k plans. Following are the six plan features that Brightscope says result in a 401k plan receiving a high ranking, along with my comments on each feature.
1. Generous company contributions
To help participants add the required 15% necessary to their accounts each year to achieve retirement readiness, many employers now match 100% of employee contributions up to 6%. Previously the standard match had been 50% of the first 6%.
2. Immediate plan eligibility
The best plans allow new hires to begin making employee 401k contributions on their hire date. There still may be waiting periods attached to receiving employer contributions, however, many employers are changing their 401k plans to allow new hires to begin making deferral contributions immediately.
3. Immediate vesting
Employee 401k contributions are always 100% immediately vested. However, employers may attach vesting schedules to any employer matching or profit sharing contributions. The best plans provide for immediate 100% vesting of all employer contributions as well.
4. Best 401k plans have low fees
For large plans, Brightscope reports that average total cost has dropped to .28%. These are plans with billions of dollars in assets. Keep in mind that average cost varies significantly based on plan size. Depending on the size of your plan, a market competitive average cost may be 1% or less.
5. High participation rates
Due to the increasing use of auto-enrollment features, the best 401(k) plans now have participation rates that reach 90% or more. If your plan suffers from low participation (less than 80%) consider implementing an auto-enrollment feature.
6. High rates of salary deferral
It is not only important that participants enter the plan, but they also need to contribute in a robust way. Brightscope reports that the average participant deferral of their best 401k plans is around $12,500 annually.
None of these plan features are difficult to implement for a 401k plan of any size, which makes having one of the best 401k plans within the reach of almost any plan sponsor. How does your plan compare?
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or email@example.com.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or firstname.lastname@example.org or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.