How Does Your 401(k) Plan Stack Up?

A fiduciary must know if its plan is actually helping employees achieve a financially secure retirement.

August 27, 2009
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It used to be that simply offering your employees a 401(k) plan with the basic features was enough. But in the post financial crisis era, it’s important to measure your plan’s success and take appropriate action when needed.

How do you measure whether your 401(k) plan is effective? Look at:

  • Services you receive in exchange for plan expenses, such as annual plan or per-participant fees, or asset-based charges;
  • Whether you’re offering a wide variety of well-known investment managers and have the risk-return continuum covered; and
  • Educational resources you make available to help employees understand the plan.

Plan fiduciaries need to analyze and understand each of these items. But recently, expectations have risen to the point where fiduciaries must also know if their plan is actually helping employees achieve financially secure retirement. In that regard, a plan’s outcome is more important than its features.

To determine if your plan sets the stage for a secure retirement for employees, ask: How many of your employees:

  • Who are eligible, are enrolled in the plan? Most large employers report 75% participation. In plans sponsored by smaller employers, 80% to 100% is a reasonable target.
  • Contribute enough to the plan to put them on track to replace an acceptable percentage of their income? Industry experts suggest that, unless you provide a defined benefit plan, 401(k) participants need to contribute 13% to 18% of pay annually (including employer match) over a 30-year working career to replace 80% of their pre-retirement income. It’s even more if employees get a late start saving or want to retire early.
  • Have properly diversified portfolios using a sound asset-allocation strategy? Many 401(k) participants make unsound decisions or don’t update their mix of stocks, bonds, and cash to reflect life changes.
  • Are on track to fund a reasonable standard of living in retirement?

It’s important to know the answers to these questions to determine if your plan benefits eligible employees and if staff are using your plan effectively. CUNA Mutual Group recently developed an innovative plan profile to supply plan sponsors with information and recommended actions if they’re below suggested targets.

Keep in mind that statistics only measure your employees’ decisions. You can’t force someone to make certain decisions. However, the following areas can play a large role in encouraging sound decision-making:

  • Plan design, including an employer-matching contribution and automatic enrollment;
  • Relevant education and plan communication, delivered through multiple channels (online, e-mail, print, Webinar); and
  • A benchmark of your 401(k) plan in terms of participation, contribution rate, asset allocation, and readiness for adequate retirement income. Know where you stand and where you’d like the plan to be.

If you’d like help in determining the effectiveness of your plan, visit our Web site and request an assessment.

SCOTT KNAPP is director of retirement investment strategy at CUNA Mutual Group, Madison, Wis. Contact him at 608-231-8486.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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