Maintaining Your Retirement Plan in a Volatile Economy
For many employers who sponsor a defined contribution 401(k) or 403(b) plan, today’s turbulent financial situation has presented new challenges in keeping employees educated, confident and invested. The recent market volatility has elevated employee concern as several of them continue to watch their retirement account values plummet. At the same time, many employers are feeling the need to re-evaluate their plan’s investment options and wanting to address employees’ concerns regarding the safety and security of the retirement plan’s assets. Clearly, there are a number of issues for employers to consider when taking steps to maintain their retirement plan.
Fiduciary Considerations and Plan Options
One key fiduciary responsibility is the selection and monitoring of the investment options. If you haven’t already done so, it may be a good time to establish an Investment Policy Statement (IPS) to outline your general investment goals, objectives and strategies. An IPS can help maintain your company’s plan strategy and ensure its alignment with corporate goals and objectives. Fiduciaries should also take steps to ensure that the plan’s fees are fully disclosed and reasonable.
Maintaining compliance with current regulations is another key responsibility that is often overlooked. Volatile financial markets and changing regulations can have a significant impact on fiduciary responsibilities, and it is always important to stay on top of recent legislative and regulatory amendments. Plan fiduciaries should also evaluate each investment option against the original selection criteria. It often pays to compare each investment option relative to its peer universe and benchmark index, and outline the decision-making process along the way.
Plan Design Review
Truly, there is no better time to revisit retirement plan objectives and update the plan design accordingly. You should know what your budget limitations are for the plan, and check to see if anything like employer contribution obligations, employer matches, or employer profit sharing, conflicts with the current plan document.
Employers should also ensure that employees have access to their account balances for financial emergencies. Planning rules and strategies for such things as emergency loans, hardship distributions and early retirement can help in this area. It is also good practice to evaluate any workforce changes and the effect they can have on the plan in regard to potential decreases to salary deferrals and plan compliance nondiscrimination testing.
Participant Concerns
Of course, one of the most difficult issues to address is the increase in employee questions and concerns around the security of their retirement savings. Employers should take care in answering how they should be investing given each employee’s unique situation. Providers and consultants offer several tools and resources to help employers to proactively address employee concerns and keep them thinking long term. Often, educational meetings and communications can help in situations where not all employees have access to email or the Internet.
Safeguarding the Retirement Plan
Employer sponsored retirement programs remain one of the most efficient and effective ways for your employees to save for retirement. They continue to be an integral part of a company’s benefit package, and are often vital to an employer’s recruitment and retention mission. Therefore, it is worthwhile to continuously monitor and evaluate your plan, especially in these turbulent market conditions.
For more information, please click on the links below…
Navigating Your Way through Market Turbulence
Department of Labor Compliance Assistance for Retirement Plans
IRS Retirement News for Employers
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Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.
March 13, 2009
Hill, Chesson & Woody strives to keep our clients' group decision makers abreast of trends influencing the employee benefits market. Look for Eyes on Benefits to bring you news and information affecting you and your employees.
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