There are five red flags defined contribution plan sponsors should watch for when evaluating their plan performance, according to research by Judy Diamond Associates.
The flags indicate whether a plan is underperforming, is poorly designed or has reached certain thresholds that suggest it may need new services.
“Identifying the most common problems and challenges facing the almost 600,000 401(k) plans nationwide can empower financial advisors to address the concerns that are keeping their clients up at night,” said Eric Ryles, managing director of Judy Diamond Associates. “In that way, our subscribers are able to better prepare their clients for the future and cement their own status as a consultant and valued partner, rather than ‘just’ a 401(k) vendor.”
Red Flags are key indicators of a plan’s general health and are valuable as a sales prospect for an advisor or other provider.
The five most common 401(k) plan red flags (in reverse order) are:
5. Corrective distributions issued: Judy Diamond found 63,349 plans that fell into this category. Plans that issue corrective distributions may be experiencing flaws in the way their plans were designed or rolled out. Participation rates and employee contribution levels at these plans may be lacking and they may be receptive to better advice, education and products from new providers.
4. Reduced employer contributions: Judy Diamond found 63,694 plans that reduced their contributions. Plans that reduce their employer contributions may benefit from better plan design.