7 signs of a successful 401(k)
For more than 30 years, I have helped plan sponsors with their 401(k) plans. From Apple and IBM to John Deere and Mazda Motor Corporation, I have had the privilege of working with a number of great Fortune 500 plans, as well as hundreds of excellent small and medium-sized plans.
I have observed that the best plans always seem to possess the following seven attributes.
1. Reasonable cost
Remember, it is OK with the Department of Labor if you pay more for services. You just need to have a reason. Better service, access to more services and a provider who is able to understand your plan’s complexity are all good reasons to pay more. The provider is a friend (or relative) of the CEO, we’ve always worked with them or senior management likes attending their annual conference in Florida in February are not good reasons.
I worked with a client that had a large Spanish-speaking workforce. The company had contracted with a recordkeeper with an excellent Spanish-speaking call center and website. Of course, it cost a bit more to provide these services. The vice president of human resources explained it perfectly by saying, “We provide a generous retirement benefit and want to ensure our employees clearly understand it.”
2. A lot of employees have account balances
3. A high percentage of employees contribute
4. New employees roll money into the plan, departing employees leave their balances
I have clients where very few employees who leave the company roll their money out of the plan. Not only does this speak to the quality of the plan, but it also means that employees trust management. Employees who work for companies where management is an enemy rather than a friend take their balances out of the plan as soon as they are able.
5. Employees understand the plan
If employees don’t understand the plan, they won’t contribute the amounts necessary to build retirement-ready balances.
6. The fund lineup has a home for everyone
If you have a large 401(k) plan that has thousands of participants your
7. The leaders in your company talk about your plan
There are probably other attributes that successful 401(k) plans share. However, I have consistently found these seven to be the most important. How would you rate your plan on these factors?
Robert Lawton, AIF, CRPS is the founder and President of