Customizing Plan Design


Retirement plans come in all shapes and sizes: DC Plans, DB Plans, Non-Qual, 401(k), 403(b), 401(a), 457, SEP IRA, Simple IRA, Roth IRA, Cash Balance, HSA… and any other number letter combinations that you can think of. The simple truth is that there is no one-size-fits-all version of a retirement plan; and as a plan sponsor, you need to select a benefit plan that is appropriate for your company and its participants. It is important to understand the basics of plan design, work with a knowledgeable advisor, and evaluate your plan based upon your specific needs.

While designing your company’s 401k plan, six major elements must be defined: eligibility, compensation, contributions, vesting, distributions and loans.

Eligibility | Who can enter the plan and when?

Pretty simple and first on the list is addressing which employees are able to enter the plan and when they are able to do so. Depending on the demographic and culture of your workforce, you may elect certain eligibility requirements such as age, tenure, or full-time employment status. Plan sponsors may choose to grant immediate eligibility or require a waiting period before new employees are allowed to participate in the plan.

Tip: Auto-Enrollment

Compensation | What part of the paycheck?

Next, you must decide what types of compensation will be used in the plan and how they are taxed. Certain types of compensation may be excluded for plan purposes without issue; these may include: compensation earned prior to plan entry and fringe benefits, even bonus and overtime (if special annual testing is passed)[1].

Contributions | Who is putting money into the plan and how?

Your plan may permit both employee and employer contributions. Any employer contributions must be allocated to participant accounts pursuant to a formula in the plan document.

Contributions can be broken into 4 major groups: elective deferrals, employer matching, safe harbor and nonelective (profit sharing) contributions.  Each of these groups has its own unique formulas and feature options that can be applied to help maximize savings. It is important to remember that all money entering the plan is subject to annual limits.[2]


Vesting | When do employer contributions become employee assets?

Participants are only entitled to the vested portion of their account balance upon exiting the plan; the remaining unvested portion must be forfeited to the plan. Sponsors can choose to reallocate these forfeitures to pay plan expenses or reduce employer contributions (e.g., the funds may be used as matching contributions for other employees).

Employee contributions and most safe harbor contributions must always be 100% immediately vested. However, plan sponsors may elect a vesting schedule appropriate to specific company needs for matching and profit sharing contributions.

Broadly speaking, there are two kinds of vesting schedules: graded vesting and cliff vesting. Regardless of schedule, a participant must become 100% vested when they reach “normal retirement age.”

Distributions | When can money be withdrawn?

Distribution is a fancy word the IRS and the financial industry use to discuss withdrawing money from the plan.  Generally, employees are eligible to take penalty-free distributions at age 59½, but it is not until age 70½ that the IRS requires employees to take distributions.

Often, plans will only permit a lump sum distribution when a participant separates from service and is entitled to a distribution. Under the lump sum option, a participant must take their entire vested account balance in a single distribution. Other distribution forms available include installment payments and partial payments.

You can permit a participant to take a distribution while still employed. These are called “in-service” distributions. These distributions must be available upon the attainment of a certain age (59 ½ or greater) or a “hardship” event. Eligible hardship events are defined by law.

A plan may permit the involuntary cash-out of small account balances. Balances under $1,000 may be distributed in cash to the participant. Balances under $5,000 may be involuntarily rolled into an IRA for the benefit of the participant.

Loans | Can employees borrow from their savings?

Retirement loans are popular among employees but often add administrative complexity for plan administrators. Employers may need to sign off on loan requests and deduct loan payments from payrolls. Offering retirement plan loans is not required: as a plan sponsor you have the authority to allow them or not.

Understanding these 6 key elements can help you to customize a plan unique to your company’s specific needs. Beyond these basics you may even consider implementing advanced plan design options such as auto-features, enhanced matching formulas, or offering a cash balance plan. [We will dive into those options in an upcoming article. Be sure to connect with us on LinkedIn or visit our blog to stay informed.]

We pride ourselves in being knowledgeable advisors and would be happy to walk through a plan design questionnaire to help develop a plan that is right for you and your employees because in the end, the whole point of your company’s plan is getting everyone successfully to retirement!




Allen Bronton, AIF®, PPC™

1900 E. Golf Rd, Suite 950

Schaumburg, IL  60173

(855) 972-9564


This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

[1] Mitte, Ed. “CPE_Compensation.” Summer 2013.

[2] Internal Revenue Service. “401(k) Plans: Deferrals and matching when compensation exceeds annual limit.“ 2017.

Mid-year 401(k) Plan Check-up

Your Mid-year 401(k) Plan Check-up and Tune-up

As we round the corner to 2018, I can’t help but wonder, where did the year go? It feels like January and New Year’s resolutions were just yesterday.  Alas, those days have come and gone, and the “next” New Year is only a few months ahead.  This means now is the time to focus on benchmarking, evaluating your plan, reflecting on what you had hoped to accomplish, and putting 2018 plans together to work towards enhancing retirement plan success.


Three Point Check-Up

Let’s not ignore the elephant in the room: cost.  If it’s been a while since you have price evaluated your company’s retirement plan, this is a great time to open the hood and find out exactly what you are paying.  As an ERISA plan fiduciary, you have a duty to understand your costs and determine reasonableness.[1]

Some areas to review include:

  • Investment expense ratios
  • Recordkeeper asset charges and fixed dollar costs
  • Advisor commissions and/or fees
  • Third Party Administrator (TPA) invoices

Your service provider partners are consistently making improvements to their offerings, including better user interfaces on their websites, an increased ability to take on administrative tasks (thus freeing up more of your time), and working towards better communication programs to promote retirement readiness. It’s important to conduct a cost analysis to review how much your plan is paying and match services to align with your plan’s needs.


Tune-Up: Cost Reasonableness

Conduct a cost analysis for your company’s retirement plan.  Benchmark your plan compared to other plans of similar size, industry, and demographic.  Document the process.  Determine the value of the services and assess fee reasonableness.  There is value and there is cost.  Remember cheaper is not always better. Match value and cost to determine fee reasonableness.

According to a recent study, the #2 concern of plan sponsors is: retirement readiness.[2]  This is your employee’s ability of to actually retire.  During your next committee meeting, look at your participant data and discuss retirement readiness.

Some questions to consider include:

  • What percentage of employees are participating in the plan?
  • What is the plan’s average deferral percentage?
  • Are your employee’s investments properly diversified?
  • What is the targeted income replacement ratio for our employees?

A best practice when reviewing participation, deferral, and allocation is to remember the 90-10-90 rule.  This means that 90%+ of your employees are participating in the plan, employees are deferring 10%+ of their income to their retirement savings, and 90% of the participants are invested in appropriate portfolio allocations.


Tune-Up: Retirement Readiness

If your plan has less than 90% participation rate, you might consider a backsweep campaign.  This could be a great January 1st initiative that aligns with the top New Year’s resolution: save more money.[3]

Next, as a plan sponsor, you could add an automatic auto-escalation feature to your plan.  Talk with your service provider, advisor, and Third Party Administrator (TPA) about how to add this progressive feature. Consider helping your employees boost their savings rates by adopting a 2% auto-increase strategy.

Re-enrollment is a great way to engage employees who might have a “set-it and forget-it” approach to investing. This  process reinvests all participants into your plan’s Qualified Default Investment Alterative (QDIA).  This is a Safe Harbor provision that could add a layer of plan protection for you as the plan fiduciary.[4]

The last check-up to consider is plan design. Is it meeting your plan objectives? Did you have corrective distributions last year?  Do you want to reward top talent employees?  Would you like to put away more for specific groups of employees?  As an employer, would you like to contribute less?  Most importantly, what is the goal of your company’s retirement plan?

By having a conversation with your TPA and reviewing your plan design now (most deadlines for plan design changes are October, so schedule your meetings today), you can update your plan information and be ready to implement it by January 2018.  Your TPA will need your company’s census data and a clear understanding of what you would like to achieve.


Tune-Up: Plan Design

Whether there are little changes to profit sharing or larger updates, like new comparability cross-tested plan design, it all starts with a conversation.  Setup a call with your TPA to discuss your plan objectives and how best to align your business goals with your plan design objectives.


Start Early to Maximize Success

December will be here soon enough, so don’t get caught asking yourself, “Where did the year go?”  Work with a qualified retirement plan advisor to discuss your retirement plan’s cost reasonableness, retirement readiness statistics, and proactive plan design options.  These are three key metrics to overall plan success that may help your firm become an employer of choice.

For information or help in evaluating these check-up and tune-up ideas, feel free to contact us to setup a conversation.




[1] “Understanding Retirement Plan Fees and Expenses.” Department of Labor.

[2] “Sponsor Perceptions of Retirement Plan Services” VOYA. January 2017.

[3] “2017 New Year’s Resolutions: The Most Popular and How To Stick to Them.” NBC News.

[4] “Using Re-enrollment to Improve Participant Investing and Provide Fiduciary Protections.” Drinker Biddle & Reath LLP.

Benchmarking Your Company’s Financial Wellness Program

Benchmarking Your Company’s Financial Wellness Program

Financial wellness is more than just a buzzword or a “feel-good” benefit: when effectively implemented, it can be a powerful tool to help employees take control of their financial lives and help your company reach organizational goals. This article will share insights on program partners and workplace benefits, as well as benchmarking tips and strategies that seek to improve financial wellness and increase employee engagement.

Starting Out on the Right Foot

We cannot emphasize the importance of employer involvement enough: plan sponsors need to identify and assess the needs of their employees on a regular basis. Key to the ultimate goal of retirement is understanding financial hurdles and tracking towards personal, financial, and savings goals: once you fully grasp these, you can be more confident that each of your employees will receive tangible benefits through a custom-tailored financial wellness program.  The more diverse your employee population, the more comprehensive your wellness program will need to be. But don’t worry – most financial wellness programs already address major life milestones.  Be sure to partner with a financial wellness provider that focuses on helping employees achieve their financial goals.

Action Over Education

Financial education is the foundation for financial wellness.  Ongoing education will pave a path for your employees to follow along their career. However, even a solid financial curriculum which covers all aspects of financial planning isn’t guaranteed to get your employees to take action. In order for a financial wellness program to actually be beneficial for your employees, it needs to go beyond merely informing them: it needs to inspire them to tackle their financial wellness journey head-on. Here are some tips for establishing a successful program:

  • Encourage employees to participate via gamification and score tracking
  • Plan a financial wellness kick-off party (e.g. an outdoor luncheon or after-hours party)
  • Track and reward goals that you have set

Tracking Success

An effective financial wellness program can help employees stay focused and on track for retirement. As an added bonus, a successful program may reduce your employees’ financial stress, resulting in a healthier and more productive workforce.[1] Financial wellness and retirement readiness are a journey, and each milestone reached is an achievement: motivate your employees by encouraging, recognizing, and celebrating them!

Recognizing these financial achievements is an ever-evolving process, but here are some benchmarking tips you may find useful in your program:

  • Take the time to check up on and connect with participants
  • Collect surveys on their individual growth and goals regularly
  • Challenge their goals to encourage them to continuously evolve and reach new heights
  • Reward employees for completing goals within a personalized deadline

Can You Afford Not To?

Financial wellness isn’t a thing you can measure in black or red: it’s subjective from individual to individual, company to company. Benchmarking year-round is a good way to solidify processes and make sure all your employees have access to equal benefits from it regardless of their age group or financial situation. On the other hand, financial wellness may provide objective benefits in the form of improved workplace productivity.

Research shows that 28% of employees report that issues with personal finances have been a distraction at work. 46% of those that work each week say they spend three hours or more thinking about or dealing with issues related to their personal finances.² This stress comes out to a cost of $3,388 of paid distracted time per affected employee on average[2], a figure which can add up dramatically with the size of your business!  A solid financial wellness program doesn’t help only employees: it may help you avoid losing time and money. Can you afford not to take an active role in your employees’ financial wellness?

Providing a financial wellness program can pay dividends for both employees and employers.  Through financial wellness, you can pave the way toward a healthier and more productive workforce. Ignoring the need for financial wellness may have an adverse effect on employee stress and productivity, costing you more in the long run than it would take to implement a financial wellness program to begin with.

At Clear Financial Strategies, we believe you have the power to reduce the effects of financial stress, help employees take control of their financial lives, and inspire successful retirement futures. We think you’ll agree that a comprehensive financial wellness program is a powerful tool and valuable asset to help you work towards achieving those goals.


We offer wealth management services to high net worth families, and we help professional organizations coordinate the various aspects required to run compliant retirement and employee benefit plans.
Clear Financial Strategies

[1] PricewaterhouseCoopers LLP. “Employee Financial Wellness Survey” (2016): Pg. 8. PWC. April 2016.

[2] Trading Economics. “United States Average Hourly Wages. 1964-2016.” October 2016. (Based on avg. hourly wage of $21.72)

Understanding Corrective Distributions

Understanding Corrective Distributions




Money Back is Good, Right?

 Refunds can be great if you are referring to tax returns, or money back from an unsatisfied purchase. However, when it comes to your company’s retirement plan, refunds or corrective distributions are red flags indicating a deeper problem. They can be an administrative nightmare for plan sponsors and cause undue stress to highly-compensated employees who may be forced to refile their taxes.


What are Corrective Distributions?

Employees within your workforce are divided into two groups: highly-compensated employees (HCE) and non-highly compensated employees (NHCE).

Highly Compensated Employee (HCE):
One who owns 5% or more of the company or earns more than $120,000 per year.

Both groups have a desire to retire and contribute what they can to the company’s defined contribution plan, however their difference in pay will affect the amount which they can put away annually. As a check on plan design equality, the IRS requires that both HCEs and NHCEs contribute to their 401(k) plans at similar percentages. If owners and managers contribute at far higher rates than their workers over the course of the year, the amount “over paid” will be refunded, which poses a problem for all parties involved.

Corrective distributions can be frustrating for both employees and plan sponsors alike. The highly-compensated employees who receive refunds must account for previously tax-deferred savings in their net pay which would then be subject to income taxes. For plan sponsors, corrective distributions are burdensome from an administrative standpoint. Repeat offenders may find it difficult to hold onto valuable employees, experience more paper work, or even face legal ramifications if timely corrections are not made.

The IRS keeps a stern eye out for corrective distributions and requires plans with over 100 employees to run nondiscrimination tests. In 2015, nearly 54,500 401(k) plans failed retirement plan testing, requiring plan sponsors to return nearly $820 million in 401(k) contributions to highly-compensated employees.[1]


What is Nondiscrimination Testing?

Nondiscrimination tests were created to help demonstrate that your plan provides comparable benefits for all employees. To calculate the applicable corrective distribution, the IRS uses a formula called the Actual Deferral Percentage (ADP). The ADP test compares the average salary deferral among HCEs to that of NHCEs as a percentage of pre-tax compensation. The requirements to pass the ADP test are as follows: If the average ADP for NHCEs is:

  • less than 2%
  • between 2% and 8%
  • More than 8%

Then the maximum Average ADP for HCEs is:

  • 2 times the average ADP for NHCEs
  • the average ADP for NHCEs plus 2%
  • 25 times the average ADP for NHCEs



Avoiding Corrections

Establishing a Safe Harbor 401(k) Plan may be one way to avoid costly refunds by omitting the need for testing.  Under a Safe Harbor, if a plan meets certain requirements, the employer isn’t required to perform nondiscrimination tests.

Additionally, optimizing plan design with features such as auto enrollment and auto escalation, offering profit sharing contributions, or educating employees on the benefits of participating in a retirement plan may help with testing failures.

Building an effective retirement plan that meets the goals of the company and your employees (HCEs & NHCEs) can be confusing. It’s important to partner with a team that understands these complexities and can help you implement a prudent fiduciary process to assist you and your employees in your pursuit of a meaningful retirement.


We offer wealth management services to high net worth families, and we help professional organizations coordinate the various aspects required to run compliant retirement and employee benefit plans.
Clear Financial Strategies


Retirement Plan Cost Analysis


Retirement plans aren’t free.  As a business owner, it’s easy to understand, but what are the real costs? What are we paying for and why?  These are great questions and exactly what we are going to answer.  There are a lot of questions about soft costs, hard billables, revenue sharing agreements, and more.  Let’s breakdown each cost sector and examine what it is and why it is important for your company’s retirement plan.

Investment Costs

The largest retirement plan cost is most likely the cost of the plan investments themselves.  These are the mutual fund vehicles that you and your employees invest in to save for your retirement future.  Mutual funds come in a variety of share classes.  Each share class has a listed investment expense ratio, which includes investment management costs, 12b-1 fees, and Sub-TA costs. The combination of these three components create the investment expense ratio.

The size of your plan assets might determine which investments your plan has access to.  The platform through which your plan is offered might also affect which investments you can access.  To better understand both the list of available share classes and investments, ask your relationship manager for a list. They should easily be able to supply this information.  Also, if your plan has grown, ask if there are less expensive mutual fund share classes available for your plan.  A quick email will help to uncover this information and possibly reduce your plan costs.

One other note, investments costs are typically soft costs.  This means that they come out of the plan participant accounts.  They are not a hard dollar billable.  Rather, for each transaction period a small percentage is taken out to cover the costs of investing management.  Thus, even though these costs are out of sight, don’t let them be out of mind.

Recordkeeper Costs

Who is my recordkeeper? Many plan sponsors are familiar with the terms provider, vendor, platform, and these are all words that describe your recordkeeper.  They are the company to which you would upload payroll contributions, log into your plan portal account, and/or check your own retirement plan account balance.  Your recordkeeper charges you for keeping track of your company’s retirement plan records.  Yes, it really is that transparent.  They make sure that all the accounts are accurate and that the monies that are pre-tax, Roth, rollovers, et al, are all accounted for and accurately separated.

For record keeping services, there is a cost.  It generally comes in two forms, soft dollar and hard billable.  Your plan might have what is called a “wrap charge.” It’s a percentage that all accounts are charged in addition to the investment costs and it pays for all of the recordkeeping services.  Also, as the plan sponsor, you may pay an annual bill that includes these services.

Some plan sponsors prefer to delegate all of the recordkeeping services and pay a quarterly cost.  This way, the participants are not paying for the cost and more money is kept in their accounts for retirement plan account growth.  The cost of this service can come from an ERISA Expense Account and/or ERISA Bucket.  Also, the costs could come from the forfeitures account.  Depending on the size of your plan, there are a few options to pay for recordkeeping services.

Keep in mind that recordkeeping services have come down significantly in recent years and at the same time, the services offered by recordkeepers have expanded considerably.  Take this as an opportunity to ask your recordkeeper, what are my total costs (soft dollar and hard billable)?  Then work with advisors like us to help you benchmark your costs and services compared to other plans of a similar size.  For the same (or less) cost, your plan could receive better customer service, industry updates, online account websites, easier to read quarterly statements, and more features to better organize your plan, while working to educate and inform your employees and help them to become retirement ready.

Advisor Costs

Today 75% of plans use a retirement plan advisor.[1]  The two most common reasons are for investment analysis review and issues about fiduciary duties.  While these are two very important reasons, working with an advisor can also help with cost benchmarking, retirement readiness, and knowledgeable advice.

Some key areas where a retirement plan advisor can be extremely valuable is to reduce your fiduciary liability exposure and work to increase your employee’s retirement readiness.  Other areas of services could include:

  • Best Practices for Improving Plan Performance
  • Proactively Consulting on Plan Design
  • Assistance in Managing Fiduciary Responsibilities
  • Monitoring Investment Options
  • Minimizing Costs
  • Providing Regulatory Updates

A great advisor can genuinely effect your retirement plan’s success metrics.

Retirement plan advisors are paid for their services either through plan assets (fees) or directly from the plan sponsor (hard dollar).  When it comes to advisor costs, ask about them.  In 2012, the Department of Labor passed regulation 408(b)2, which requires plan sponsors to know and benchmark plan costs for reasonableness.  Also, every year, you will receive a statement from “covered service providers” that show charges for plan expenses.  Your advisor is one of them.  Find out if their costs, services, and value are aligned with your expectations.  If you haven’t seen or heard from your advisor in a few years, chances are you are still paying them; the question is, for what?  Request a list of services and frequency of deliverability to confirm that your expenses are covering plan services that are important to you and helping your employees.

TPA Costs

A Third Party Administrator (TPA) is like a CPA for your company’s retirement plan.  They will look at your company census, cash flow, and plan objectives to provide a plan design illustration that fits your business and plan goals.  Working with a quality TPA is a great way for employers seeking to leverage, retain and recruit top employee talent.  Most TPAs bill their clients annually for filing the Form 5500 and executing other administrative filing reports.

Plan Auditor

If your company’s retirement plan has over 100 participants, each year you need to complete a plan audit. These can be time consuming and expensive. Plus, the rules surrounding plan audits have recently changed.  Auditing charges are usually a hard billable and range in cost.  They generally start around $7,000 and go up from there.[2]  If your plan is hovering around 100 participants, it might be time to think about forcing eligible participants out of the plan through an Automatic Rollover Safe Harbor.  This could reduce administrative headaches for your support team, as well as save you from enduring the over 100 large plan audit.

We hope that during this article, we have covered the basics of retirement plan costs.  Offering a company-sponsored retirement plan is an incredible tool for employers to attract and retain top employee talent.  It is also a great vehicle for the business owner to strategically plan for his or her own retirement.  However, as we have described, retirement plans aren’t free.  The important takeaway is understanding how much you are paying, for what, and why.

For help with cost benchmarking and fee analysis, please connect with us and we will gladly review your plan information and provide a barometer, so that you can review your costs in a transparent and informed way.



We offer wealth management services to high net worth families, and we help professional organizations coordinate the various aspects required to run compliant retirement and employee benefit plans.
Clear Financial Strategies


This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

[1] Retirement Advisor Council


Auto Features- The Future of 401(k)?


Everything these days seems to be automated from reminders for doctors’ appointments, to bill paying, to (something clever). And why not?! Automation is the future, but does this apply to retirement planning as well? Auto-features are gaining traction and participants are more open to them than originally expected. A 2016 survey by American Century found that 70% of participants were:

-in favor of automatic enrollment

-showed interest in regular, incremental automatic increases

-support plan investment re-enrollment into target-date solutions.[1]

Automatic features may help ease plan sponsor woes such as poor participation and low deferral rates.


Left to our own devices Americans are not the most diligent savers. When you consider retirement savings, the outlook is even more bleak. Although 8 out of 10 full time employees have access to an employer-sponsored plan, only 64% participate.[2] To help increase enrollment more and more companies are adopting auto-enroll. This plan design feature enrolls eligible employees into the retirement plan by default, participants are then given the chance to opt out. Auto-enrollment has shown to increase participation from 42% to 91%.[3]



The traditional 3% deferral rate is not quite cutting it these days —in fact, 30.2% of companies adopted a 6% or higher default deferral rate by the end of 2015.[4] Employers and participants alike seem to acknowledge that low deferral rates will not provide enough savings to make their retirement aspirations a reality.


Struggling to help your participants save more? Auto-escalation could help. This plan design feature may help employees overcome inertia by automatically increasing their 401k contribution at regular intervals, typically 1% a year, until it reaches a preset maximum (typically 10%).  One percent may not seem like a lot, but together with compound interest, when the time comes to retire, it can make a huge difference! The graph shows how even 1% can affect your nest egg. In the hypothetical example shown below, at the end of 20 years of saving, a participant contributing at 3% would have $65,800 whereas the participant utilizing auto-escalation would have $171,700.[5] That’s over $105,000 difference! Which do you believe would better poise your employees to retire?


Employer hesitancy toward adopting auto features is understandable, however, not implementing these advanced features could be short-sighted. Automatic enrollment paired with auto-escalation can help more employees increase their savings and help them achieve their retirement goals. If you have been reluctant to explore these options in the past, maybe it is time to revisit the conversation; after all, the point of offering a company sponsored retirement plan is to help your employees retire successfully.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

We offer wealth management services to high net worth families, and we help professional organizations coordinate the various aspects required to run compliant retirement and employee benefit plans.

Clear Financial Strategies, LLC


[1] American Century Investments. “Fourth Annual Plan Participant Study Results.” August 2016.

[2] Bureau of Labor Statistics. “Employee Benefits in the United States.” March 2015.

[3] ASPPA Net Staff. “More Jump on Auto Enrollment Bandwagon, but Not Everyone.” January 2015.

[4] T.Rowe Price. “Reference Point Annual Survey.” April 2016.

[5] Based on Annual salary of $50,000 and 7% return. Deferral rate of 3% vs. 3% starting 1% annual increase up to 10%.

Benchmarking Your 401(k)

Benchmarking Your 401(k) Plan: A once a year check-up, or a regular check-in?

As humans age, we age with complexity and it’s a priority that we make frequent visits to the doctor. Normally, we all go to the doctor for yearly checkups; checkups can include adjusting of daily supplements like a multivitamin, or even getting regularly checked for signs of cancer or bigger risk health issues. No one will make us go see a doctor, but it’s important to prioritize monitoring and checking up on our health.


In the 401(k) industry, it is becoming more apparent that plans need to be reviewed at least yearly and more thoroughly in order to adequately address fiduciary responsibility and duties. However, many companies haven’t made benchmarking a priority even with recent 401(k) lawsuits. If you have not yet made benchmarking a priority, here are four reasons to highlight why it needs to be made one.

  1. Benchmarking can help reduce your personal liability as an employer as well as company liability. Yes, under ERISA, you as the employer can be personally liable because every sponsor has a fiduciary duty to its participants. Not only that, but ERISA wants to see that you are documenting your actions.
  1. Saving money for your plan participants, and of course, the company. ERISA requires a sponsor to ensure that fees are reasonable, and a benchmark is a great way to do that.[1] Here are some questions to answer in your effort to reduce costs: [2]

            How much are participants paying in investment fees?

How much is the company paying in admin fees?

            How many providers are being paid on the plan?

            What service does each provider offer the plan?

            What are plans of similar sizes paying?

  1. Not all providers are created equal: Look into improving your service providers. There are many factors that play into analyzing service offerings; some have high service models, advanced technology, or simply just get the job done. Additionally, it’s important to look into factors such as participants getting access to customer support or investment advice, if the provider is responsive, if they “sign and act” in fiduciary roles, and even how much work is passed to you, the plan sponsor, in administering the plan.


  1. Sticking to your plan and focusing on improving it. Make it a priority to find out if your existing plan document, plan structure, and plan design are meeting your goals.[3]

So, how often should plan sponsors benchmark their plan?[4]

91.7% of plan sponsors benchmark once per year, while 8.3% only benchmark every 5 years.

What are some of the most valuable benchmarking metrics?[5]

Investment expenses compared with peer plans – 100% say very important

Administrative expenses compared with peer plans – 91.7% say very important

Average employee participation rate – 81.8% say very important

Average deferral percent – 81.8% say very important

Percentage of participants getting the full match – 63.6% say very important

Benchmarking is a key component of a plan sponsor’s fiduciary due diligence.  By looking back at these four reasons to benchmark your 401(k) plan, we hope we have addressed why it is important and why many plan sponsors benchmark their plan on a regular and consistent basis.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

We offer wealth management services to high net worth families, and we help professional organizations coordinate the various aspects required to run compliant retirement and employee benefit plans.

Clear Financial Strategies



[1] Barclay, Spencer. “Why Benchmarking Your 401(k) Plan Should be a Top Priority” BenefitGuard. July 8, 2015

[2] Barclay, Spencer. “Why Benchmarking Your 401(k) Plan Should be a Top Priority” BenefitGuard. July 8, 2015

[3] Barclay, Spencer. “Why Benchmarking Your 401(k) Plan Should be a Top Priority” BenefitGuard. July 8, 2015

[4] Moore, Rebecca. “Plan Benchmarking Measures.” PLANSPONSOR. Feb 2015

[5] Moore, Rebecca. “Plan Benchmarking Measures.” PLANSPONSOR. Feb 2015


Nearly since the Employee Retirement Security Act (ERISA) was passed in 1974 the large insurance companies, banks, brokerage firms and mutual fund companies have dominated the corporate retirement plan space with their huge marketing budgets and Super Bowl half time commercials.  What do these institutions have in common and how does that affect you?  None of them have to operate under a fiduciary standard of care when dealing with their clients.  Instead they only need to comply with a suitability or similar standard of care.  This is significant because a suitability standard does not compel them to do what is in their clients’ best interest.  As long as the recommendation is suitable, the institution is free to chose an option that profits them at the expense of their client without violating any rules or laws.  Demos, a not-for-profit, estimates that the average American two earner household will pay about $155,000 in excess retirement plan fees during their lifetime.  It’s no wonder the big names can afford the expensive glossy brochures, television and full page magazine advertisements. Read more

Open Architecture


As a fee only RIA firm we are required by ethics and regulatory authorities to always put our client’s best interests before our own. When it comes to group retirement plans, to us, that means pure open architecture.  Unfortunately, the marketing departments of many packaged product companies use the term open architecture as a buzz word to sell their product rather than what we feel is the true definition.

To start, let’s look at the various primary components of a group retirement plan:

  • Custodian: The custodian is charged with the safe keeping of the plan assets as well as collecting dividends, interest and other income. The custodian also provides for the efficient transfer of assets during purchases, sales, contributions and distributions.
  • Record Keeper: An often underappreciated and vital component that can make or break a retirement plan. The record keeper provides for the accounting of overall plan assets as well as each plan participants holdings, if it is a participant directed plan.
  • Third Party Administrator (TPA): The one area where many problems can be prevented from the start. The TPA is the compliance component, helping to assure that contributions are made on-time, compliance testing (if required) is completed properly among many, many other functions. A top notch TPA is required for a well-run retirement plan.
  • Investments/Investment Manager: The component most marketed for fiduciary services, with some warranted and legitimate, while others are dubious tactics at best. This component could be one of the commonly seen insurance company, mutual fund or brokerage firm names advertised on television, in magazines and in newspapers. It can also be a Registered Investment Advisory Firm such as ours.

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Historic Day in Retirement Savings History!

Treasury BuildingToday the U.S. Department of the Treasury announced the availability of the MyRA plan to employees of companies that don’t offer a corporate retirement savings plan option.

Normally I would be ecstatic that anybody was helping U.S. workers save more for retirement.  Unfortunately, call me stoic, but this plan seems more like a way to continue to finance the country’s bloated debt burden on the backs of those that can least afford it.  Since the only investment option is U.S. Government Securities, yielding less than 2%, the real return on the accounts amounts to nearly an interest free loan to the worst money manager in the U.S., the government.