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How to Know if Your 401(k) Plan is Performing

Joshua Rapp | Retirement Plan Specialist | Cornerstone Private Asset Trust Company

401K performance

One of the hardest questions to answer as a business owner is, “How is our company retirement plan performing?” And when you dig deeper, there are even more questions that come up. Questions such as:

  • What does it mean to have your retirement plan perform?
  • Does it mean the investments are doing well?
  • Are they the best performers?
  • Are they the cheapest options?
  • Does everyone in the plan agree with my definition of performance?

So many questions. The good news is that there are some pretty good ideas out there about how to measure performance of a retirement plan. To be honest, there are also some pretty bad ideas out there too. Let’s only focus on the good ones and go from there.

Measuring Company 401(k) Performance

Shlomo Benartzi, an American behavioral economist, known for his research on retirement savings, wrote a formula to act as a measuring stick for 401(k) plan goals. It’s called 90-10-90. The 90-10-90 approach looks at three major items within your retirement plan that point to employee plan participation and outcomes:

  • 90% (or more) of employees participating in the plan;
  • 10% (or more) savings rate; and
  • 90% of the employees participating in the plan should let a professional advisor build their portfolio. This could be a target date fund, model portfolio, or managed account option.

This seems easy to understand, right? 90-10-90, easy. But while it is easy to understand, it is harder to accomplish.

Questions to ask About Your Company 401(k)

As a business owner, there are some questions you can ask to help determine if your company retirement plan is performing the way it should. These include:

  • What is the website utilization percentage?
  • Am I offering employees education meetings?
  • Are my employees asking questions at education meetings?
  • Are the education meetings about more financial topics other than the 401K only?
  • Are we passing all the non-discrimination annual testing requirements or are my highly compensated employees getting refunds or being capped on how much they can defer?
  • Does our plan design benefit both owners and employees?
  • Am I covered as a Fiduciary, and have I mitigated my risk as much as possible?

With this list of potential questions, it’s easy to see why you want an expert by your side to help you navigate the ever-changing world of company-sponsored retirement plans. Cornerstone Private Asset Trust Company will work with you to provide plan participants with a low-cost plan and exceptional service. We feel that regular reviews are critical to the success of the plan. As your company grows or changes the retirement plan must change to accommodate the company and the plan participants.

If you’d like any assistance with understanding your retirement plan and seeing if it is performing the way you want it to, contact Joshua Rapp at J[email protected] or visit the Retirement Services page of our website.

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