The Importance of Evaluating Plan Design and Administration for Plan Sponsors
For retirement plan sponsors, maintaining an effective, compliant, and beneficial plan for employees is an ongoing responsibility. A well-designed and efficiently managed retirement plan can help increase employee participation, improve financial security, and ensure regulatory compliance. However, without regular evaluation, plans may become outdated, costly, or misaligned with workforce needs.
Understanding Plan Design and Administration
Plan design involves structuring a retirement plan’s features, such as eligibility requirements, contribution limits, vesting schedules, and investment options. Plan administration focuses on managing these plans to ensure smooth operation and compliance with legal and regulatory requirements. A well-designed plan balances affordability for employers with meaningful benefits for employees.
Why Plan Sponsors Should Regularly Evaluate Plan Design
Regulatory Compliance and Risk Management
Regulatory changes, such as the SECURE 2.0 Act, continue to reshape retirement plans. Regular evaluations help ensure adherence to ERISA, IRS, and Department of Labor (DOL) guidelines, reducing the risk of costly penalties and lawsuits. Plan sponsors must review plan documents, contribution structures, and participant eligibility criteria to maintain compliance.
Maximizing Employee Participation and Engagement
An effective retirement plan encourages employees to save consistently. Features like auto-enrollment and auto-escalation can help significantly boost participation rates. Behavioral finance strategies, such as default investments in target-date funds, guide participants toward informed decisions. Regular reviews help ensure these features remain optimized for the workforce’s evolving demographics.
Enhancing Investment Options for Better Outcomes
Plan sponsors must ensure that investment options align with participants’ risk tolerance and retirement goals. Regularly reviewing the performance of target-date funds, managed accounts, and self-directed brokerage options can help improve financial outcomes. Additionally, simplifying investment selections can help reduce employees’ decision fatigue.
Optimizing Plan Costs and Fees
Transparent and competitive plan fees are critical for maximizing participant savings. Excessive recordkeeping, investment, and advisory fees can erode retirement savings over time. Benchmarking fees against industry standards and renegotiating service provider contracts can lead to additional cost savings.
Key Steps in Evaluating Plan Design and Administration
Conduct an Annual Plan Review: Assess plan features, investment performance, and compliance updates.
Benchmark Against Industry Standards: Compare plan metrics with similar organizations to identify areas for improvement.
Gather Employee Feedback: Survey participants to understand their needs and tailor plan features accordingly.
Use Technology: Implement digital platforms that offer real-time analytics and participant engagement tools.
Future Trends in Plan Design and Administration
Plan sponsors should prepare for advancements in digital retirement planning, enhanced financial wellness programs, and expanded retirement income solutions. AI-driven tools can offer personalized guidance, while comprehensive financial wellness initiatives support employees’ broader financial needs, including emergency savings and debt management.
Regularly evaluating plan design and administration is essential for ensuring compliance, enhancing participant outcomes, and optimizing costs. Savant’s Retirement Plan Services team is dedicated to helping plan sponsors take a proactive approach, enabling them to offer a retirement plan that is both appealing to employees and sustainable for long-term success.
Sources:
Patricia L. Hutchinson
Director of Retirement Plan Services
MBA