The Hidden Cost of Inaction: Four Reasons Why You Need to Review Your Plan Regularly
No company wants to waste money, but your organization may be overlooking one of the simplest ways to cut expenses: your retirement plan.
According to October Three partner Brian Donohue, failing to review your retirement plan regularly can cause financial consequences for employers and employees. Here are four factors that may be costing your organization extra money:
1. Excessive and uncompetitive fees
Plan fees can become uncompetitive as time passes if better, more affordable options enter the market.
Risk: Without periodic benchmarking, companies may unknowingly overpay for plan administration, recordkeeping and investment management.
Impact: High fees reduce employees' long-term savings and increase employer costs, making it a lose-lose situation.
Example: A 0.5% difference in fees may seem insignificant, but over time, it adds up and can dramatically reduce an employee’s retirement savings.
2. Poor investment performance
Companies must be prepared to adjust as the economy and financial markets shift and evolve.
Risk: As market conditions change, employees may be stuck in underperforming or overly risky funds.
Impact: Employees might lose money. The company may face scrutiny if the investment lineup is outdated or misaligned with fiduciary best practices.
Example: If an investment fund’s value decreases significantly more than the S&P 500 annual return, the plan sponsor should switch employee funds into a better-performing fund.
3. Legal and compliance issues
Inaction has regulatory risks, including noncompliance with fiduciary duties.
Risk: Failure to meet IRS, DOL and ERISA regulations can result in audits, fines and legal action.
Impact: Companies may face employee lawsuits if they believe the plan has excessive fees, poor investment choices or inadequate communication.
Example: In recent years, major companies have paid millions in settlements for failing to review and update their retirement plan structures.
4. Missed opportunities
Employers should always be looking for newer, more cost-effective plan structures.
Risk: Companies that don’t explore new plan features (e.g., auto-enrollment, managed accounts or pooled employer plans) may miss financial advantages.
Impact: Employers may lose out on tax credits, cost-sharing efficiencies or improved employee financial well-being.
Example: If a company doesn’t consider updating plan features, it could miss cost savings and struggle with employee engagement and retention, as workers search for stronger retirement benefits.
How can companies avoid these pitfalls?
Conduct annual reviews, either internal or with a third-party consultant.
Benchmark against industry standards.
Explore enhancement opportunities with plan providers and advisors.
Ask for employee feedback to ensure engagement and satisfaction.
Conclusion
Regular retirement plan reviews are necessary. Without them, companies could face rising costs, legal risks and disengaged employees. A proactive approach helps protect against excessive fees, poor investment performance, regulatory fines and workforce inefficiencies.