The Unicorn HRO Blog
Important 401k Factors Your Clients Should ConsiderPosted Tuesday, December 06, 2016 by Unicorn HRO
Employees consider their 401K plan to be one of the most important benefits that comes with a full-time job, and employers have increasingly offered these types of plans to attract the best employees to their company. Providing a 401K plan means that the employer has a large amount of responsibility, especially when it comes to helping the employee understand how their plan works, how much they should pay into their plan, and determine if they are saving enough money for the future. There are, however, other factors that both employers and employees need to consider when dealing with 401Ks.
For many years, companies which offered 401K plans to employers were not legally obligated to explain specifically how investors were being charged with regards to fees. In 2012, the Obama administration forced these providers to provide detailed accounts of how much is being charged via these 401K plans, and what fees are being collected. While this information may be considered useful, it presents complications for employers who may not completely understand it. Nevertheless, it is the employer’s responsibility to dig through the fine print. Employing someone with expertise in performing this responsibility is often recommended. Employees trust their employers to manage their investments wisely and expect their employers to act as responsible caretakers of these 401K plans.
Federal law states that should employers offer a retirement plan such as a 401K, they need to meet a set standard of fiduciary responsibility. They need to manage a plan and its assets in the most competent way possible and in a way that benefits employees who participate in this plan. One of the main sources of concern for employers who offer such plans is the risk of litigation if they are believed not to have met this standard of fiduciary responsibility. Many employers, especially those who run smaller or mid-sized companies, might not know the best way to invest assets related to a 401K. In order to avoid legal trouble, they might want someone else to do this on their behalf. Many employers have consequently seen fit to employ the services of a financial adviser who can serve as a formal role in choosing the best investment options for employees.
Employers who provide 401K plans to their employees also need to be aware of the importance of advising them on how to best manage these plans and guiding them through the decision-making process. One of the main ways to do this is to encourage employees to begin saving money towards their 401K at an early stage in their career. Many companies also enable their employees to meet with HR or a dedicated financial advisor, to discuss the most appropriate plan for their specific needs. While Federal Law only requires that employees enrolled in these plans save 3% towards them, many employers are advising their employees to put aside more money for these plans. Moreover, they are advising that more could be saved by participating in financial wellness programs as well as choosing the right diversification for these investments.
Employers must realize that to offer a 401K plan to employees doesn’t necessarily mean that this plan will manage itself. By knowing the costs and risks as well as the benefits and options involved, employers can identify the most appropriate plans for their staff and help their employees to choose the best 401k option to ensure a better quality of life in the future.