All Things 401(k): Benchmarking

Rose Street Advisors

Your guide from hire to retire.

Why Benchmarking is Crucial for Choosing the Right 401(k) Solution: Bundled vs. Unbundled

When it comes to choosing a 401(k) plan for your business, there are several options available. Two of the most common options are bundled and unbundled solutions. A bundled 401(k) plan is an all-in-one package that includes all the necessary services and products, such as recordkeeping, administration, and investment management, from a single provider. An unbundled 401(k) plan, on the other hand, allows you to choose separate providers for each of these services.

While both types of plans have their benefits, it’s important to benchmark them against each other to determine which is the right fit for your business. Here’s why benchmarking is crucial when choosing the right 401(k) solution:

1. Comparing Costs:

One of the most important factors to consider when choosing a 401(k) plan is the cost. Bundled plans may appear to be more expensive upfront, but they often come with lower investment fees and administrative costs. By benchmarking bundled and unbundled plans against each other, you can compare the costs of each option to determine which is the best fit for your business and in the best interest of your employees.

2. Evaluating Services:

Another factor to consider when choosing a 401(k) plan is the level of services provided. Bundled plans offer a comprehensive suite of services, while unbundled plans allow you to pick and choose the services you need. By benchmarking the two options, you can evaluate the services provided and determine which plan is best suited for your business’s needs.

3. Analyzing Investment Options:

Investment options are a crucial aspect of any 401(k) plan. Bundled plans often use proprietary products for their investment options which can lower costs and offer specialized investment strategies but can often times limit the range of investment options available to employees. These proprietary products often come with surrender charges that may make it more difficult or expensive for employees to move their investments if they are utilizing those proprietary investment options in their portfolio. Unbundled plans typically allow you to choose from a wider range of investment products allowing employees more options for diversification of their individual portfolio. By benchmarking the investment options offered by each provider, you can evaluate which provider offers the best investment options for your employees.

4. Considering Employee Satisfaction:

Ultimately, the success of your 401(k) plan will depend on how satisfied your employees are with it. Unbundled solutions tend to be a better fit for more complex or complicated plan designs because a TPA firm specializes in just the administration for the plan as compared to a firm that takes on more responsibility by doing the recordkeeping and administration for the plan. By benchmarking bundled and unbundled plans against each other, you can determine which plan is more likely to meet the needs and expectations of your employees.

To benchmark a 401(k) plan, employers should work with a qualified advisor who can compare the plan to others in the industry and provide recommendations for improvements. The advisor should consider factors such as plan design, fees, investment options, and employee participation rates.

Why Benchmark an Existing 401(k) Plan?

A 401(k) plan is an important retirement savings tool that allows employees to save and invest a portion of their salary on a tax-deferred basis. However, not all 401(k) plans are created equal, and it’s important for employers to regularly benchmark their plan to ensure that it is competitive and meets the needs of their employees.

Benchmarking is the process of comparing a company’s 401(k) plan to other plans in the industry to identify strengths, weaknesses, and opportunities for improvement. Here are a few reasons why benchmarking is important:

1. Ensuring Competitiveness:

One of the main reasons for benchmarking a 401(k) plan is to ensure that it is competitive with other plans in the industry. If a company’s plan is not competitive, it may struggle to attract and retain top talent, which can have a negative impact on the company’s bottom line.

2. Identifying Areas for Improvement:

Benchmarking can help identify areas where a company’s plan may be falling short. For example, if the plan’s fees are higher than those of comparable plans, it may be time to negotiate with the plan provider or consider switching to a different provider.

3. Meeting Fiduciary Obligations:

As a plan sponsor, it’s important to fulfill your fiduciary obligations by ensuring that the plan is in the best interest of your employees and establishing that the fees paid are reasonable for the services provided. Benchmarking can help ensure that the plan is meeting this standard and that all investment options are appropriate and properly managed.

4. Enhancing Employee Satisfaction:

A competitive 401(k) plan can be a valuable employee benefit and can help enhance employee satisfaction and loyalty. By benchmarking the plan and making necessary improvements, employers can demonstrate their commitment to their employees’ financial well-being.

In conclusion, benchmarking is a critical component of maintaining a competitive and effective retirement savings program. It’s important to compare costs, evaluate services, analyze investment options, and consider employee satisfaction, so you can make an informed decision that will benefit both your business and your employees in the long run. By regularly reviewing and improving the plan after establishment employers can ensure that it meets the needs of their employees and help them achieve a secure retirement.

JULIA MUNSON

AIF®, CPFA® | Retirement Relationship Manager

Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work.

This material and the opinions voiced are for general information only and are not intended to provide speciﬁc advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your Rose Street Financial Professional. Information obtained from third-party sources are believed to be reliable but not guaranteed.

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