Do you need a new 401(k)?

If we’re being honest, this probably isn’t a question you ask very often. The 401(k) is a crucial benefit if you want to compete for talent. But once you have one, if you’re like most HR or finance professionals, you probably check the box and move on.

And really, we couldn’t blame you for that. The 401(k) isn’t what keeps the lights on. But much like an old car, an outdated 401(k) can cost you money, cause you a lot of hassle, and quite simply won’t do as good a job at getting your employees from point A to point B (with point B being a comfortable retirement, of course).

So how do you tell if your 401(k) is in need to an upgrade? In this quick read, we’ll walk you through the 5 biggest warning signs that it might be time for a change.

1. You’re Failing Nondiscrimination Testing

When you fail nondiscrimination testing, that means two things: not enough of your lower-earning employees are participating in the 401(k), and those that are aren’t saving enough. The consequence of this is that your high-earning employees – oftentimes owners or executives – can’t save as much as they’d like. As anyone who’s ever failed nondiscrimination testing will tell you, this never makes for a pleasant conversation, and in some extreme cases, may even cause important employees to look elsewhere. A new 401(k) provider - one that assists with plan design and employee engagement - should be able to solve your participation problems and get your plan well on its way to passing its tests.

2. Your Employees Don’t Have Access to Education & Financial Support

Your employees are stressed about retirement. According to a recent study by Gallup, 59% of Americans are worried they won’t have enough saved for retirement, which makes it the number one financial concern faced by Americans today. Providing these employees support – whether that be from one-on-one sessions with financial experts, or on-demand lessons from virtual advisors – can help your employees know exactly how much of their paychecks they need to save to reach their retirement goals. They can even alleviate financial stress by advising employees on other matters like paying down debt or saving for a home. Many 401(k) providers today provide access to this kind of support, so if yours doesn’t, it may be time to look for one that does.

3. You Don’t Have Maximum Fiduciary Coverage

401(k)s are very tightly regulated. Keeping up with these regulations requires a lot of work and diligence when it comes to administrating your plan. And, as the data shows, this can be a real issue for many plan sponsors. In fact, in 2018 alone, 64% of companies that were audited by the Department of Labor failed, resulting in over $1.6B in fines & recoveries to plans, participants, and their beneficiaries.

Luckily, in today’s day and age, these risks can be significantly mitigated by outsourcing much of this fiduciary liability. Check with your provider to see what level of liability they assume. If they don’t assume legal responsibility for both investment selection and proper plan administration, you could be exposed to some very big risks.

4. Your 401(k) Audit is a Painful, Time-Consuming Process

Each year, the IRS requires most plans with over 100 participations to undergo an audit to ensure the plan was administered correctly and followed government regulations. For most plan sponsors, this process involves a lot of back-and-forth, can take weeks to complete, and generally costs anywhere from $10,000 - $15,000 each year. If you find yourself with a lot of pain related to the audit, that’s a sign that something in your administration process is broken and in need of improvement. The right 401(k) provider can help you by cleaning up your administration and automating manual processes. They may even take the audit off your plate!

5. You’re Paying More Than 0.75% in All-In Fees

When it comes to having enough saved for retirement, fees can really hurt your employees. You see, fees compound, just like investments do. So over time, even 0.1% of fees can take a huge chunk out of your employees’ retirement savings. With the number of low-cost, well-performing funds on the market, we generally like to see all-in fees under 75 basis points. If you’re paying more than that, it may be worth considering other options. It could save your employees thousands of dollars over time.

Conclusion

And there you have it! 5 signs that it’s time for a new 401(k). If you find yourself with any of these issues, you may want to begin considering a new provider. Since we know this evaluation process can be a real pain, we created this checklist: a simple tool that’ll help you see how all the providers you’re considering stack up. Check it out!