A commercial electric contracting and engineering firm offered a 401(k) plan with retail brokerage accounts. The plan design included a very generous profit sharing formula (15%). The previous service provider used retail brokerage accounts in the name of the individual trustees (higher liability).
The Situation
This design made the plan difficult to administer and expensive. In addition, the plan’s advisor used retail commission based investment products and would not act in a fiduciary capacity to the plan or its participants.
The generous plan design actually made employees feel as if they did not need to contribute to be ready for retirement. As a result participation and retirement readiness suffered.
The Approach
We proposed a traditional “trust” solution with open investment architecture and risk-based model portfolios. Through the conversion, we transferred assets from brokerage accounts into a traditional single trust account solution. In addition, the Plan Sponsor provided our Firm with the required information to calculate income replacement ratios for pre- and post-plan conversion. We conducted individual one-on-one investment consultations which provided participants an opportunity to determine if they were realistically on track to achieve a successful retirement.
The Result
All employees met with an investment advisor who shared what level of income they could expect during retirement from the 401(k) Plan. As a result of these meetings, participation rates jumped from 33.9% to 58.3%. Participants on track for a successful retirement as defined by sufficient income replacement (80%) increased from 30.2% to 35.4%.
The total retirement plan fee (service provider and investments) was reduced by 59%. Our Firm accepted fiduciary status in writing to the Plan and participants alike.