5 low-cost ways to make your 401(k) plan better

After working with thousands of 401(k) plans over a nearly 30 year consulting career, I have consistently run into a relatively small number of easily fixable problems that can make a big difference in many 401(k) plans. Check out this list to see if your 401(k) plan can be improved.

1. Cure low participation with auto-enrollment. Many plan sponsors have trouble getting employees to enroll and contribute to the 401(k) plan. Auto-enrollment solves that problem quite effectively. The costs to a plan sponsor are minimal and relate to amending the plan and communicating the change.

Total cost: less than $5,000.

2. Fix failing nondiscrimination tests with auto-escalation. Plans that currently do not pass their ADP and/or ACP nondiscrimination tests should consider auto-enrollment and auto-escalation. After a few years the NHCE ADP will rise as that group begins to contribute at rates that are more appropriate to building a retirement ready account balance. A plan amendment and communication of the change are again required.

Total cost: less than $5,000.

3. Get better advice by requiring your investment adviser to be a fiduciary. Many plans still do not have their investment adviser signed on as a fiduciary to their 401(k) plan. This is especially true for long-term relationships. I have heard plan sponsors say things like "We have worked with our investment adviser for years and he says he doesn't need to be a fiduciary, and we trust him." Either get your investment adviser to sign on as a fiduciary or put the business out to bid. The cost of getting your investment adviser to sign on is $0.00. The cost of not having your investment adviser signed on may be huge.

Total cost: $0.00.

4. Stop wasting employees’ time with on-site employee education. It is nearly impossible to get participants to attend the sessions. It is an even greater challenge to get them to participate. And do they ever learn anything? There are many studies that show that adults learn better in short bursts, no longer than 10 or 15 minutes. Change your employee education program by offering it online, on demand, at your employees’ home so spouses can participate as well. There are many ways to accomplish this change that will actually save your company money since you won't be pulling employees away from their work.

Total cost: $0.00.

5. Fix inappropriate investing by offering target-date funds and re-enrolling everyone. I still talk with way too many participants who have invested 100% of their account balance in a real estate fund, for example. Also, there remain many plans that do not offer professionally managed investment options like target-date funds. Studies indicate that 75% or more of plan participants desire a "do it for me" approach. Address poor investment selection by making sure you have a professionally managed option available, designate it as a QDIA and re-enroll your participants into these funds. Plan amendments and communication costs are the only expenses incurred here.

Total cost: less than $5,000.

Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com), an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.