low-cost 401k plan improvements post preceded by LRPC's Plan Sponsor Insight image.

After working with thousands of 401k plans over a nearly 30-year consulting career, I have consistently run into a relatively small number of easily fixable problems that can make a big difference in many 401k plans. Check out this list of suggested low-cost 401k plan improvements.

Low-Cost 401k Plan Improvements

1. Cure low participation with auto-enrollment

One of the most common low-cost 401k plan improvements is adding an auto-enrollment feature. Many plan sponsors have trouble getting employees to enroll and contribute to the 401k plan. Auto-enrollment solves that problem quite effectively. The costs to a plan sponsor are minimal and relate to amending the plan and communicating the change.

Total cost: less than $5,000

2. Fix failing nondiscrimination tests with auto-escalation

Plan’s that currently do not pass their ADP and/or ACP nondiscrimination tests should consider auto-enrollment and auto-escalation. After a few years, the NHCE ADP will rise as that group begins to contribute at rates which are more appropriate to building a retirement ready account balance. A plan amendment and communication of the change are again required.

Total cost: less than $5,000

3. Get better advice by requiring your investment advisor to be a fiduciary

Of all the low-cost 401k plan improvements shared, this is one of the cheapest. Many plans still do not have their investment advisor signed on as a fiduciary to their 401k plan. This is especially true for long-term relationships. I have heard plan sponsors say things like “We have worked with our investment advisor for years and he says he doesn’t need to be a fiduciary and we trust him.” Don’t trust. Either get your investment advisor to sign on as a fiduciary or put the business out to bid. The cost of getting your investment advisor to sign on is $0.00. The cost of not having your investment advisory signed on may be huge.

Total cost: $0.00

4. Stop wasting your employees time with on-site employee education

It is nearly impossible to get participants to attend the sessions. It is an even greater challenge to get them to participate. And do they ever learn anything? There are many studies which show that adults learn better in short bursts, no longer than 10 or 15 minutes. Change your employee education program by offering it online, on demand, at your employees home so your employee’s spouses can participate as well. This is the most cost efficient of all the low-cost 401k plan improvements since it may actually save your company money because you won’t be pulling employees away from their work.

Total cost: $0.00

5. Fix inappropriate investing by offering target date funds and re-enrolling everyone

I still talk with way too many participants who have invested 100% of their account balance in a real estate fund, for example. Also, there remain many plans that do not offer professionally managed investment options like target date funds. Studies indicate that 75% or more of plan participants desire a “do it for me” approach. Address poor investment selection by making sure you have a professionally managed option available, designate it as a QDIA and re-enroll your participants into these funds. Plan amendments and communication costs are the only expenses incurred here.

Total cost: less than $5,000


About the Author

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 bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

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 bob@lawtonrpc.com or visit the firm’s website at: https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

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.