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How to Fix Your Company’s 401(k)

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[dropcap]O[/dropcap]f all the moving pieces involved in running a successful company, employee retirement plans probably don’t rank very high on your list of priorities. On one level, that makes sense — it’s not as if the inner workings of your company’s plan are integral to growing revenue and profit margins, right? That said: Is your retirement plan any good? Does it have the right mix of investment options for your staff, delivered at a fair cost?

If you just shrugged out of indifference or because you don’t have a clue, well, you’re blowing it. And here’s why: Every dollar peeled off for internal benefits is a dollar not spent on building your business. If you’re not sure if you’re getting the maximum benefit from this decision, that’s potentially a serious misfire on allocation of capital. More important, you’re also potentially screwing things up for your people. If you’re unintentionally sticking your employees with high fees — an increasingly serious drawback to so many 401(k) plans today — their balances come retirement time will be tens of thousands of dollars less than what they would have been if your company’s plan was packed with lower-cost funds.

Fortunately, there’s something you can do about it — like, today. A set of new Department of Labor regulations kicked into action on July 1, requiring that employers sponsoring a 401(k) plan receive a breakdown of fees from the plan provider. The disclosure includes investment fees you and your employees pay on the underlying funds offered in your plan, as well as administrative fees. (Another part of the new regulations is that all employees must get a version of the fee breakdown no later than Aug. 30, and then you must provide ongoing disclosure — but your plan’s provider does the heavy lifting on this.)

Unfortunately, the disclosures can result in a 20- to 30-page data dump that can be tedious to wade through. Yet regardless of how fat the report is, it’s important to do your best to carve out some time and read it. Really read it. And ask questions. Multinationals may have entire departments dedicated to making sure they are getting the best deal on employee benefits; smaller businesses have to be scrappier. Read the report. When you’re done, you’ll have a better idea if your plan is a good one or a dog — and if it’s a dog, you’ll know it’s time to consider a switch.

In addition to exposing the new fee data, the new 401(k) disclosures present an equally important opportunity for CEOs to understand if their plan truly makes sense — for their company and their people. Here’s what to look for.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Bill Harris is the founder of Personal Capital. He has spent 25 years building financial technology, notably serving as CEO of Intuit and PayPal. He is the founder of several financial technology companies and has served on the boards of numerous technology firms, such as SuccessFactors, RSA Security, Macromedia, and
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